Asset Pricing Theories / Michael Rothschild.

Format:

Book

Author/Creator:

Rothschild, Michael.

Contributor:

National Bureau of Economic Research.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0044.

NBER technical working paper series no. t0044

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Summary:

This article compares two leading models of asset pricing: the capital asset pricing model (CAPM) and the arbitrage pricing theory (APT): I argue that while the APT is compatible with the data available for testing theories of asset pricing, the CAPM is not. In reaching this conclusion emphasis is placed on the distinction between the unconditional (relatively incomplete) information which econometricians must use to estimate asset pricing models and the conditional (complete) information which investors use in making the portfolio decisions which determine asset prices. Empirical work to date suggests that it is unlikely that the APT will produce a simple equation which explains differences in risk premium well with a few parameters. If the CAPM were correct, it would provide such an equation.

Notes:

Print version record

March 1985.