Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach

Douglas J Hodgson, Oliver Linton and Keith Vorkink

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We develop new tests of the capital asset pricing model which are valid under the assumption that the distribution generating returns is elliptically symmetric; this assumption is necessary and sufficient for the validity of the CAPM. Our test is based on semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric. The elliptical symmetry assumption allows us to avoid the curse of dimensionality problem that typically arises in multivariate semiparametric estimation procedures, because the multivariate elliptically symmetric density function can be written as a function of a scalar transformation of the observed multivariate data. The elliptically symmetric family includes a number of thick-tailed distributions and so is potentially relevant in financial applications. Our estimated betas are lower than the OLS estimates, and our parameter estimates are much less consistent with the CAPM restrictions than the corresponding OLS estimates.

Keywords: Adaptive estimation; capital asset pricing model; efficiency. (search for similar items in EconPapers)
JEL-codes: C13 C14 C22 C24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2000-07
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach (2002)
Journal Article: Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach (2002)
Working Paper: Testing the Capital Asset Pricing Model Efficiently Under Elliptical Symmetry: A Semiparametric Approach (2001)
Working Paper: Testing the Capital Asset Pricing Model Efficiently Under Elliptical Symmetry: A Semiparametric Approach (2001)
Working Paper: Testing the Capital Asset Pricing Model Efficiently under Elliptical Symmetry: A Semiparametric Approach (2000)
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