Empirical Tests of Asset Pricing Models with Individual Stocks

54 Pages Posted: 24 Jan 2014 Last revised: 22 Sep 2015

See all articles by Narasimhan Jegadeesh

Narasimhan Jegadeesh

Emory University - Department of Finance

Joonki Noh

Case Western Reserve University - Department of Banking and Finance

Date Written: March 15, 2013

Abstract

We develop an instrumental variables methodology to obtain consistent estimates of risk premiums using individual stocks as test assets. Simulation evidence indicates that this methodology yields unbiased estimates of risk premiums and that the associated tests are well specified in small samples. We test a number of recently proposed asset pricing models using this approach. We find that the CAPM market risk, SMB and HML factors risks, investment and ROE factors risks under the production-based asset pricing model and the LCAPM illiquidity-adjusted market risk are not priced.

Keywords: Asset pricing models, Empirical tests, Test assets, Individual stocks, Instrumental variables

JEL Classification: G12, C10

Suggested Citation

Jegadeesh, Narasimhan and Noh, Joonki, Empirical Tests of Asset Pricing Models with Individual Stocks (March 15, 2013). Available at SSRN: https://ssrn.com/abstract=2382677 or http://dx.doi.org/10.2139/ssrn.2382677

Narasimhan Jegadeesh

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Joonki Noh (Contact Author)

Case Western Reserve University - Department of Banking and Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-3737 (Phone)

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