Solving an Empirical Puzzle in the Capital Asset Pricing Model

Jalal Akhavein (), John H. Leusner and P. A. V. B. Swamy

No 1996-14, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A long standing puzzle in the Capital Asset Pricing Model (CAPM) has been the inability of empirical work to validate it. This paper presents a new approach to estimating the CAPM, taking into account the differences between observable and expected returns for risky assets and for the market portfolio of all traded assets, as well as inherent nonlinearities and the effects of excluded variables. Using this approach, we provide evidence that the relation between the observable returns on stock and market portfolios is nonlinear.

Keywords: Asset pricing; measurement errors; excluded variables (search for similar items in EconPapers)
Pages: 33 pages
Date: 2019-12-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/1996/199614/199614pap.pdf (application/pdf)

Related works:
Working Paper: Solving an empirical puzzle in the capital asset pricing model (1996)
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:fip:fedgfe:1996-14

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().