A Mean-Variance Framework for Tests of Asset Pricing Models

Shmuel Kandel and Robert Stambaugh

The Review of Financial Studies, 1989, vol. 2, issue 2, 125-56

Abstract: This article presents a mean-variance framework for likelihood- ratio tests of asset pricing models. A pricing model is tested by examining the position of one or more reference portfolios in sample mean-standard-deviation space. Included are tests of both single-beta and multiple-beta relations, with or without a riskless asset, using either a general or a specific alternative hypothesis. Tests with a factor that is not a portfolio return are also included. The mean-variance framework is illustrated by testing the zero-beta CAPM, a two- beta pricing model, and the consumption-beta model. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1989
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