Linton, Oliver, Hodgson, Douglas J. and Vorkink, Keith (2001) Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach. Discussion paper, 382. Financial Markets Group, London School of Economics and Political Science, London, UK.Full text not available from this repository.
We develop new tests of the capital asset pricing model that take account of and are valid under the assumption that the distribution generating returns is elliptically symmetric; this assumption is neccessary and sufficient for the validity of the CAPM. Our test is based on semi-parametric efficient estimation procedures for a seemingly unrelated regression model where the multvariate error density is elliptically symmetric, but otherwise unrestricted. 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 parametric estimates are much less consistent with the CAPM restrictions than the corresponding OLS estimates.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2001 The Authors|
|Library of Congress subject classification:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Economics
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