Pricing Within and Across Asset Classes

16 Pages Posted: 8 Dec 2016 Last revised: 11 Nov 2017

Victoria Dobrynskaya

National Research University Higher School of Economics

Date Written: December 6, 2016

Abstract

When an asset-pricing model is claimed to explain a cross-section of portfolio returns, it should do so both within one asset class and across different asset classes. This paper illustrates that this is not always the case using the CAPM and Asness, Moskowitz and Pedersen (AMP, 2013) models applied to momentum and value portfolios as examples. Apparently, on one hand, the CAPM is almost as good as the AMP model in explaining the portfolio returns across asset classes, but on the other hand, the AMP model is almost as bad as the CAPM in explaining these returns within one asset class. Therefore, applying an asset-pricing model to a single cross-section of returns may generate misleading results.

Keywords: Momentum, Value, Asset Classes, Cross-Sectional Asset Pricing

JEL Classification: G12, G14, G15

Suggested Citation

Dobrynskaya, Victoria, Pricing Within and Across Asset Classes (December 6, 2016). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2881473 or http://dx.doi.org/10.2139/ssrn.2881473

Victoria Dobrynskaya (Contact Author)

National Research University Higher School of Economics ( email )

26, Shabolovka st.
Moscow, 119017
Russia

HOME PAGE: http://www.hse.ru

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