Abstract

http://ssrn.com/abstract=277351
 
 

References (31)



 
 

Citations (10)



 


 



An Investment-Growth Asset Pricing Model


Qing Li


Columbia University - Columbia Business School

Maria Vassalou


Centre for Economic Policy Research (CEPR)

Yuhang Xing


Rice University

March 7, 2001

AFA 2002 Atlanta Meetings

Abstract:     
In this paper we present a simple model where asset returns are functions of multiple investment growth rates. The model is tested for its ability to price the 25 Fama-French portfolios using the Generalized Methods of Moments (GMM) methodology, as well as Fama-MacBeth cross-sectional regressions. Comparisons on the basis of several metrics with other models, such as the CAPM, the Fama-French (1993) model and Cochrane's (1996) model, reveal that it consistently outperforms the CAPM and Cochrane's model. It also outperforms the Fama-French model in several tests. Our model can explain a significantly larger proportion of the cross-sectional variation in the 25 Fama-French portfolios than the Fama-French model does. Specification tests in the context of GMM and the Fama-MacBeth regressions show that in the presence of the investment growth factors included in our model, the size and book-to-market characteristics lose their ability to explain asset returns. Our model is successful in pricing size- and book-to-market- sorted portfolios, although it includes exclusively macroeconomic variables as factors.

Number of Pages in PDF File: 58

Keywords: Asset pricing, Investment growth

JEL Classification: G12

working papers series


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Date posted: July 21, 2001  

Suggested Citation

Li, Qing and Vassalou, Maria and Xing, Yuhang, An Investment-Growth Asset Pricing Model (March 7, 2001). AFA 2002 Atlanta Meetings. Available at SSRN: http://ssrn.com/abstract=277351 or http://dx.doi.org/10.2139/ssrn.277351

Contact Information

Qing Li
Columbia University - Columbia Business School ( email )
3022 Broadway
Department of Finance and Economics 313 Uris Hall
New York, NY 10027
United States
Maria Vassalou (Contact Author)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Yuhang Xing
Rice University ( email )
6100 South Main Street
Houston, TX 7705-1892
United States
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