Assessing Asset Pricing Models Using Revealed Preference

48 Pages Posted: 17 Oct 2013 Last revised: 19 Mar 2015

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

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Date Written: March 14, 2015

Abstract

We propose a new method of testing asset pricing models that relies on using quantities rather than simply prices or returns. We use the capital flows into and out of mutual funds to infer which risk model investors use. We derive a simple test statistic that allows us to infer, from a set of candidate models, the model that is closest to the model that investors use in making their capital allocation decisions. Using our method, we assess the performance of the most commonly used asset pricing models in the literature.

Keywords: Asset Pricing Models, Factor Models, Test, Mutual Fund Flows

Suggested Citation

Berk, Jonathan and van Binsbergen, Jules H., Assessing Asset Pricing Models Using Revealed Preference (March 14, 2015). Available at SSRN: https://ssrn.com/abstract=2340784 or http://dx.doi.org/10.2139/ssrn.2340784

Jonathan B. Berk

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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