Abstract

http://ssrn.com/abstract=1917406
 
 

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Risk and Return in an Equilibrium Apt: Application of a New Test Methodology


Gregory Connor


London School of Economics & Political Science (LSE) - Department of Accounting and Finance

Robert A. Korajczyk


Northwestern University - Kellogg School of Management

March 1988

Journal of Financial Economics (JFE), Vol. 21, No. 2, 1988

Abstract:     
We use an asymptotic principal Components technique to estimate pervasive factors influencing asset returns and to test the restrictions imposed by static and intertemporal equilibrium versions of the arbitrage pricing theory (APT) on a multivariate regression model. The empirical techniques allow for fairly arbitrary time variation in risk premiums. We find that the APT provides a better description of the expected returns on assets than the capital asset pricing model (CAPM). However, some statistically reliable mipricing of assets by the APT remains.

Number of Pages in PDF File: 64

Keywords: Asymptotic Principal Components, Arbitrage Pricing Theory, APT, Asset Pricing Model

JEL Classification: G1, G12

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Date posted: August 27, 2011  

Suggested Citation

Connor, Gregory and Korajczyk, Robert A., Risk and Return in an Equilibrium Apt: Application of a New Test Methodology (March 1988). Journal of Financial Economics (JFE), Vol. 21, No. 2, 1988. Available at SSRN: http://ssrn.com/abstract=1917406

Contact Information

Gregory Connor
London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 702 955-6407 (Phone)
+44 702 955-7420 (Fax)
Robert A. Korajczyk (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)
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