 The Restrictions on Predictability Implied by Rational Asset Pricing ModelsThe Review of Financial Studies, 1998, vol. 11, issue 2, 343-82 Abstract: This article shows how rational asset pricing models restrict the regression-based criteria commonly used to measure return predictability. Specifically, it invokes no-arbitrage arguments to show that the intercept, slope coefficients, and R[superscript 2] in predictive regressions must take specific values. These restrictions provide a way to directly assess whether the predictability uncovered using regression analysis is consistent with rational pricing. Empirical tests reveal that the returns on the CRSP size deciles are too predictable to be compatible with a number of well-known pricing models. However, the overall pattern of predictability across these portfolios is reasonably consistent with what we would expect under circumstances where predictability is rational. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies. Date: 1998 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:11:y:1998:i:2:p:343-82 Ordering information: This journal article can be ordered from Access Statistics for this article The Review of Financial Studies is currently edited by Itay Goldstein More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.