A Mean-Variance Framework for Tests for Asset Pricing Models

Shmuel Kandel and Robert Stambaugh

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: This paper presents a mean-variance framework for likelihood ration tests of asset pricing models. A pricing model is tested by examining the position of one of more reference portfolios is 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 factors that are not portfolio returns 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.

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Journal Article: A Mean-Variance Framework for Tests of Asset Pricing Models (1989)
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