EconPapers    
Economics at your fingertips  
 

Bank Testing Linear Factor Pricing Models with Large Cross-Sections: A Distribution-Free Approach

Sermin Gungor and Richard Luger

Staff Working Papers from Bank of Canada

Abstract: We develop a finite-sample procedure to test the beta-pricing representation of linear factor pricing models that is applicable even if the number of test assets is greater than the length of the time series. Our distribution-free framework leaves open the possibility of unknown forms of non-normalities, heteroskedasticity, time-varying correlations, and even outliers in the asset returns. The power of the proposed test procedure increases as the time-series lengthens and/or the cross-section becomes larger. This stands in sharp contrast to the usual tests that lose power or may not even be computable if the cross-section is too large. Finally, we revisit the CAPM and the Fama-French three factor model. Our results strongly support the mean-variance efficiency of the market portfolio.

Keywords: Econometric and statistical methods; Financial markets (search for similar items in EconPapers)
JEL-codes: C12 C14 C33 G11 G12 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2010
New Economics Papers: this item is included in nep-ban and nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/12/wp10-36.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:10-36

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-25
Handle: RePEc:bca:bocawp:10-36