Abstract

http://ssrn.com/abstract=1361823
 
 

References (10)



 
 

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Pricing Model Performance and the Two-Pass Cross-Sectional Regression Methodology


Raymond Kan


University of Toronto - Rotman School of Management

Cesare Robotti


Federal Reserve Bank of Atlanta; EDHEC Risk Institute

Jay A. Shanken


Emory University - Goizueta Business School; National Bureau of Economic Research (NBER)

April 18, 2012

Journal of Finance, Forthcoming

Abstract:     
Over the years, many asset pricing studies have employed the sample cross-sectional regression (CSR) R2 as a measure of model performance. We derive the asymptotic distribution of this statistic and develop associated model comparison tests, taking into account the inevitable impact of model misspecification on the variability of the two-pass CSR estimates. We encounter several examples of large R2 differences that are not statistically significant. A version of the intertemporal CAPM exhibits the best overall performance, followed by the "three-factor model" of Fama and French (1993). Interestingly, the performance of prominent consumption CAPMs proves to be sensitive to variations in experimental design.

Number of Pages in PDF File: 101

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Date posted: April 22, 2012 ; Last revised: July 5, 2014

Suggested Citation

Kan, Raymond and Robotti, Cesare and Shanken, Jay A., Pricing Model Performance and the Two-Pass Cross-Sectional Regression Methodology (April 18, 2012). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1361823 or http://dx.doi.org/10.2139/ssrn.1361823

Contact Information

Raymond Kan
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-4291 (Phone)
416-971-3048 (Fax)
Cesare Robotti
Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street NE
Atlanta, GA 30309-4470
United States
404-498-8543 (Phone)
404-498-8810 (Fax)
EDHEC Risk Institute ( email )
Lille
France
Jay A. Shanken (Contact Author)
Emory University - Goizueta Business School ( email )
1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4772 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  10
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