Asset Pricing Tests Under Price-Dividend Ratio Restrictions
56 Pages Posted: 19 Feb 2001
Date Written: February 16, 2001
I estimate seven popular asset pricing models using restrictions on the mean and variance of the price-dividend ratio. Matching the high variability in observed price-dividend ratios is an interesting challenge for the models. In addition, restrictions such as these are useful in evaluating second generation models, which have been designed to overcome specific deficiencies in earlier models. By construction, the newer models should make improvements in satisfying these deficiencies, so it is necessary to evaluate the new models in the context of alternative restrictions. Nearly all of the models considered are rejected by the price-dividend ratio restrictions, although many of the second generation models perform better than their earlier counterparts.
JEL Classification: G12, C52
Suggested Citation: Suggested Citation