Measuring the Pricing Error of the Arbitrage Pricing Theory

John Geweke and Guofu Zhou

No 276, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This article provides an exact Bayesian framework for analyzing the arbitrage pricing theory (APT). Based on the Gibbs sampler, we show how to obtain the exact posterior distributions for functions of interest in the factor modeL In particular, we propose a measure of the APT pricing deviations and obtain its exact posterior distribution. Using monthly portfolio returns grouped by industry and market capitalization, we find that there is little improvement in reducing the pricing errors by including more factors beyond the first one.

Pages: 31 pages
Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (166)

Published in the Review of Financial Studies, Summer 1996, Vol. 9, No. 2, pp. 557-587

Downloads: (external link)
http://down.aefweb.net/WorkingPapers/w276.pdf (application/pdf)

Related works:
Journal Article: Measuring the Pricing Error of the Arbitrage Pricing Theory (1996)
Working Paper: Measuring the pricing error of the arbitrage pricing theory (1995)
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:cuf:wpaper:276

Access Statistics for this paper

More papers in CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().