Access the full text.
Sign up today, get DeepDyve free for 14 days.
E. Fama, K. French (1993)
Common risk factors in the returns on stocks and bondsJournal of Financial Economics, 33
R. Merton (1973)
AN INTERTEMPORAL CAPITAL ASSET PRICING MODELEconometrica, 41
Tongshu Ma, R. Jagannathan (2002)
Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints HelpsCapital Markets: Asset Pricing & Valuation
E. Fama, James MacBeth (1973)
Risk, Return, and Equilibrium: Empirical TestsJournal of Political Economy, 81
N. Chen, Richard Roll, S. Ross (1986)
Economic Forces and the Stock MarketThe Journal of Business, 59
M. Gibbons (1982)
MULTIVARIATE TESTS OF FINANCIAL MODELS A New ApproachJournal of Financial Economics, 10
J. Kallberg, W. Ziemba (1983)
Comparison of Alternative Utility Functions in Portfolio Selection ProblemsManagement Science, 29
Kent Daniel, S. Titman (2012)
Testing Factor-Model Explanations of Market Anomalies, 1
R. Stambaugh, Yu Yuan (2015)
Mispricing FactorsFEN: Behavioral Finance (Topic)
Richard Roll (1977)
A Critique of the Asset Pricing Theory''s Tests: Part I
S. Kothari, Jay Shanken, Richard Sloan (1995)
Another Look at the Cross-section of Expected Stock ReturnsJournal of Finance, 50
Jay Shanken (1986)
Testing Portfolio Efficiency When the Zero-Beta Rate Is Unknown: A NoteJournal of Finance, 41
Tony Zijl (1987)
Risk Decomposition: Variance or Standard Deviation—A Reexamination and ExtensionJournal of Financial and Quantitative Analysis, 22
Jay Shanken (1985)
Multivariate tests of the zero-beta CAPMJournal of Financial Economics, 14
F. Black (1972)
Capital Market Equilibrium with Restricted BorrowingThe Journal of Business, 45
M. Gibbons, S. Ross, Jay Shanken (1989)
A Test of the Efficiency of a Given PortfolioEconometrica, 57
M. Lettau, Markus Pelger (2018)
Factors That Fit the Time Series and Cross-Section of Stock ReturnsCapital Markets: Asset Pricing & Valuation eJournal
R. Lucas (1978)
ASSET PRICES IN AN EXCHANGE ECONOMYEconometrica, 46
Jack Treynor (1961)
Market Value, Time, and RiskFinance Educator: Courses
J. Jobson, Bob Korkie (1982)
Potential performance and tests of portfolio efficiencyJournal of Financial Economics, 10
Tongshu Ma, R. Jagannathan (2002)
Risk Reduction in Large Portfolios: A Role for Portfolio Weight ConstraintsJournal of Financial Abstracts eJournal
R. Stambaugh (1982)
On the exclusion of assets from tests of the two-parameter model: A sensitivity analysisJournal of Financial Economics, 10
Robert Novy-Marx (2013)
The other side of value: The gross profitability premium.Journal of Financial Economics, 108
D. Miles, A. Timmermann (1996)
Variation in Expected Stock Returns: Evidence on the Pricing of Equities from a Cross-Section of UK CompaniesEconomica, 63
Moshe Levy (2007)
Conditions for a CAPM equilibrium with positive pricesJ. Econ. Theory, 137
W. Ferson, Campbell Harvey (1990)
The Variation of Economic Risk PremiumsJournal of Political Economy, 99
J. Cochrane (2011)
Presidential Address: Discount RatesJournal of Finance, 66
G. Chamberlain, M. Rothschild (1982)
Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset MarketsNBER Working Paper Series
E. Fama (1968)
RISK, RETURN AND EQUILIBRIUM: SOME CLARIFYING COMMENTSJournal of Finance, 23
Shmuel Kandel (1984)
The likelihood ratio test statistic of mean-variance efficiency without a riskless assetJournal of Financial Economics, 13
S. Basu (1977)
Investment Performance of Common Stocks in Relation to their Price-Earnings Ratios
J. Lintner (1965)
THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETSThe Review of Economics and Statistics, 47
I. Friend, M. Blume (1970)
Measurement of Portfolio Performance Under UncertaintyThe American Economic Review, 60
E. Fama, K. French (2014)
A Five-Factor Asset Pricing ModelS&P Global Market Intelligence Research Paper Series
Jessica James, Louis Yang (2010)
Stop-losses, maximum drawdown-at-risk and replicating financial time series with the stationary bootstrapQuantitative Finance, 10
Jia He, Lilian Ng (1994)
Economic Forces, Fundamental Variables, and Equity ReturnsThe Journal of Business, 67
E. Fama, K. French (1992)
The Cross‐Section of Expected Stock ReturnsJournal of Finance, 47
James Davis (1994)
The Cross-Section of Realized Stock Returns: The Pre- Compustat EvidenceJournal of Finance, 49
C Asness (2013)
49Journal of Portfolio Management, 39
J. Tobin (1958)
Liquidity Preference as Behavior towards RiskThe Review of Economic Studies, 25
Francisco Barillas, Jay Shanken (2015)
Comparing Asset Pricing ModelsERN: Asset Pricing Models (Topic)
Moshe Levy (2010)
Loss aversion and the price of riskQuantitative Finance, 10
J. Lewellen, S. Nagel, Jay Shanken (2006)
A Skeptical Appraisal of Asset-Pricing TestsNBER Working Paper Series
C. Peake (2005)
The Capital Asset Pricing Model: Theory and EvidenceCfa Digest, 35
M. Jensen (1967)
The Performance of Mutual Funds in the Period 1945-1964Harvard Business School: Negotiation
Franco Modigliani (1963)
CORPORATE INCOME TAXES AND THE COST OF CAPITAL: A CORRECTION, 53
E. Fama, K. French (2019)
Comparing Cross-Section and Time-Series Factor ModelsCapital Markets: Market Efficiency eJournal
Guofu Zhou (1991)
Small sample tests of portfolio efficiencyJournal of Financial Economics, 30
Josef Lakonishok, A. Shapiro (1984)
Stock Returns, Beta, Variance and Size: An Empirical AnalysisFinancial Analysts Journal, 40
Richard Roll (1980)
Orthogonal PortfoliosJournal of Financial and Quantitative Analysis, 15
R. Merton (1972)
An Analytic Derivation of the Efficient Portfolio FrontierJournal of Financial and Quantitative Analysis, 7
H. Levy (1983)
The Capital Asset Pricing Model: Theory and EmpiricismThe Economic Journal, 93
René Stulz (1994)
International Portfolio Choice and Asset Pricing: An Integrative SurveyNBER Working Paper Series
J. Campbell
AMERICAN FINANCE ASSOCIATIONThe Journal of Finance
R. Stulz (1981)
A model of international asset pricingJournal of Financial Economics, 9
Yoram Kroll, H. Levy, H. Markowitz (1984)
Mean-Variance versus Direct Utility MaximizationJournal of Finance, 39
M. Jensen, F. Black, Myron Scholes (2006)
The Capital Asset Pricing Model: Some Empirical TestsCapital Markets: Asset Pricing & Valuation
Shmuel Kandel (1986)
The Geometry of the Maximum Likelihood Estimator of the Zero-Beta ReturnJournal of Finance, 41
Gregory Connor, Robert Korajczyk (1985)
Performance Measurement with the Arbitrage Pricing Theory: A New Framework for AnalysisEconometrics: Mathematical Methods & Programming eJournal
W. Sharpe (1964)
CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*Journal of Finance, 19
M. Blume (1970)
Portfolio Theory: A Step Toward Its Practical ApplicationThe Journal of Business, 43
Clifford Ang (2018)
International Tests of a Five-Factor Asset Pricing ModelCfa Digest, 48
W. Sharpe (1963)
A Simplified Model for Portfolio AnalysisManagement Science, 9
Josef Lakonishok, A. Shapiro (1986)
Systematic risk, total risk and size as determinants of stock market returnsJournal of Banking and Finance, 10
L. Pulley (1981)
A General Mean-Variance Approximation to Expected Utility for Short Holding PeriodsJournal of Financial and Quantitative Analysis, 16
E. Fama, K. French (1996)
Multifactor Explanations of Asset Pricing AnomaliesJournal of Finance, 51
Laxminarayan Bhandari (1988)
Debt/Equity Ratio and Expected Common Stock Returns: Empirical EvidenceJournal of Finance, 43
S. Ross (1977)
THE CAPITAL ASSET PRICING MODEL (CAPM), SHORT‐SALE RESTRICTIONS AND RELATED ISSUESJournal of Finance, 32
R. Banz (1981)
The relationship between return and market value of common stocksJournal of Financial Economics, 9
Barr Rosenberg., K. Reid, Ronald Lanstein (1985)
Persuasive evidence of market inefficiency, 11
Cliff Asness, Andrea Frazzini (2019)
The Devil in HML's Details
Moshe Levy, Y. Ritov (2011)
Mean–variance efficient portfolios with many assets: 50% shortQuantitative Finance, 11
Jay Shanken (1992)
On the Estimation of Beta-Pricing ModelsReview of Financial Studies, 5
L. Jack, A. Robert (1962)
TREYNOR, . Toward a Theory of Market Value of Risky Assets, Unpublished manuscript., 1999
J. Cochrane (1991)
Production‐Based Asset Pricing and the Link Between Stock Returns and Economic FluctuationsJournal of Finance, 46
J. Mossin (1966)
EQUILIBRIUM IN A CAPITAL ASSET MARKETEconometrica, 34
Arthur Keown (1994)
Foundations of Finance
Douglas Breeden (1979)
An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment OpportunitiesERN: Asset Pricing Models (Topic)
E. Fama, K. French (1995)
Size and Book-to-Market Factors in Earnings and ReturnsJournal of Finance, 50
R. Green, Burton Hollifield (1992)
When Will Mean-Variance Efficient Portfolios Be Well Diversified?Journal of Finance, 47
Kewei Hou, Chen Xue, Lu Zhang (2012)
Digesting Anomalies: An Investment ApproachFinancial Accounting eJournal
Jonas Schmitt (2016)
Portfolio Selection Efficient Diversification Of Investments
F. Black (1993)
Beta and Return, 20
E. Fama, K. French (1997)
Value Versus Growth: The International EvidenceChicago Booth: Fama-Miller Working Paper Series
[This chapter distinguishes between two main branches of asset pricing: (1) general equilibrium models and (2) multifactor models. We begin by reviewing the pathbreaking work by Sharpe (1964) and others, who utilized equilibrium pricing conditions in the mean-variance return world of Markowitz (1959) to derive the theoretical CAPM. Its market model form is used in empirical tests to regress excess stock returns on excess market returns (proxied by general market index returns minus Treasury bill rates) and thereby estimate beta risk coefficients. Early tests of the market model found a weaker relation between U.S. stock returns and beta than expected by the CAPM. In an attempt to overcome empirical issues in early CAPM tests, Black (1972) proposed the zero-beta CAPM as a more general form. Here we review his mathematical derivation of the zero-beta CAPM. As we will see, both of these famous models are grounded in similar portfolio theory and general equilibrium conditions. The remainder of the chapter covers various multifactor models with little or theoretical foundation but empirical support. In a series of papers, Fama and French (1992, 1993, 1995, 1996) presented convincing empirical evidence that the market model did not work for U.S. stock returns over many years and therefore declared the CAPM dead. They subsequently proposed a three-factor model that augmented the market model’s general market index with size and value multifactors, which provided a better fit to U.S. stock return data. We also discuss the following extensions of the three-factor model: Carhart’s (1997) four-factor model (adding a momentum factor), and Fama and French’s (2015) five-factor model (adding profit and capital investment factors). Lastly, we overview the Hou et al. (2015) q-factor model, Stambaugh and Yuan’s (2017) mispricing four-factor model, Fama and French’s (2018, 2020) six-factor model adding momentum to their five-factor model, and other recent model developments.]
Published: Mar 2, 2021
Keywords: Asset pricing; CAPM; Cross-sectional tests; Equilibrium pricing; Fama and French models; Fischer Black; Investment parabola; Market model; Multifactor models; Return dispersion; Stock market; William Sharpe; Valuation; ZCAPM; Zero-beta CAPM
Read and print from thousands of top scholarly journals.
Already have an account? Log in
Bookmark this article. You can see your Bookmarks on your DeepDyve Library.
To save an article, log in first, or sign up for a DeepDyve account if you don’t already have one.
Copy and paste the desired citation format or use the link below to download a file formatted for EndNote
Access the full text.
Sign up today, get DeepDyve free for 14 days.
All DeepDyve websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.