Testing conditional asset pricing models: An emerging market perspective
详细信息 查看全文
- 作者：Javed Iqbal ; Robert Brooks ; Don U.A. Galagedera
- 关键词：Stochastic discount factor ; Conditioning information ; Kurtosis ; Emerging markets
- 刊名：Journal of International Money and Finance
- 出版年：2010
- 出版时间：September 2010
- 年：2010
- 卷：29
- 期：5
- 页码：897-918
- 全文大小：485 K
文摘
The CAPM as the benchmark asset pricing model generally performs poorly in both developed and emerging markets. We investigate whether allowing the model parameters to vary improves the performance of the CAPM and the Fama–French model. Conditional asset pricing models scaled by conditioning variables such as Trading Volume and Dividend Yield generally result in small pricing errors. However, a graphical analysis reveals that the predictions of conditional models are generally upward biased. We demonstrate that the bias in prediction may be the consequence of ignoring frequent large variation in asset returns caused by volatile institutional, political and macroeconomic conditions. This is characterised by excess kurtosis. An unconditional Fama–French model augmented with a cubic market factor performs the best among some competing models when local risk factors are employed. Moreover, the conditional models with global risk factors scaled by global conditioning variables perform better than the unconditional models with global risk factors.