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File name: SSRN-id824931. ; Size: 1528K
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Time-Varying Conditional Covariances in Tests of Asset Pricing Models
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
June 1989
Abstract:
This paper proposes tests of asset pricing models that allow for time variation in conditional covariances. The evidence indicates that the conditional covariances do change through time. Estimates of the expected excess return on the market divided by the variance of the market (reward-to-risk ratio) are presented for the Sharpe-Lintner CAPM, as well as a number of tests of the model specification. The patterns of the pricing errors through time suggest the model's inability to capture the dynamic behavior of asset returns. This is the working paper version of my 1989 Journal of Financial Economics article.
Number of Pages in PDF File: 36
Keywords: CAPM, asset pricing tests, market efficiency, time-varying risk, dynamic risk, predicting returns, forecasting stock returns
JEL Classification: G12, G11, G14
working papers series
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Date posted: October 8, 2005
Suggested CitationHarvey, Campbell R., Time-Varying Conditional Covariances in Tests of Asset Pricing Models (June 1989). Available at SSRN: http://ssrn.com/abstract=812925 or http://dx.doi.org/10.2139/ssrn.812925
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