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A Skeptical Appraisal of Asset-Pricing Tests / Jonathan Lewellen, Stefan Nagel, Jay Shanken.
- Format:
- Book
- Author/Creator:
- Lewellen, Jonathan.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w12360.
- NBER working paper series no. w12360
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2006.
- Summary:
- It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size- and B/M-sorted portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used in the literature. We argue that asset-pricing tests are often highly misleading, in the sense that apparently strong explanatory power (high cross-sectional R2s and small pricing errors) in fact provides quite weak support for a model. We offer a number of suggestions for improving empirical tests and evidence that several proposed models don't work as well as originally advertised.
- Notes:
- Print version record
- July 2006.
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