Asset Pricing Model Estimation Errors During Rational and Irrational Investor Behavior Periods

The International Journal of Business and Finance Research, v. 13 (2)

25 Pages Posted: 11 Feb 2020

See all articles by Michael G. Marsh

Michael G. Marsh

affiliation not provided to SSRN

Marc Muchnick

Capella University

Date Written: 2019

Abstract

This paper examines the prediction that human behavior changes the outcome of market predictability, indicated by a difference in asset pricing model estimated prediction error, calculated using the Sharpe ratio, Jensen’s alpha, and the Treynor measure for publicly traded firms in the consumer discretionary and consumer staples sectors. Applying a series of independent t-tests to mean comparisons of these measures ultimately provided mixed results, demonstrating a statistically significant difference only with Jensen’s alpha and the Sharpe ratio in both sectors. This indicates a need for extra caution for asset pricing model use under potentially irrational periods.

Keywords: Asset Pricing, Behavioral Finance, Irrationality, Beta

JEL Classification: G12, G41

Suggested Citation

Marsh, Michael G. and Muchnick, Marc, Asset Pricing Model Estimation Errors During Rational and Irrational Investor Behavior Periods (2019). The International Journal of Business and Finance Research, v. 13 (2) . Available at SSRN: https://ssrn.com/abstract=3461836

Michael G. Marsh (Contact Author)

affiliation not provided to SSRN

Marc Muchnick

Capella University ( email )

225 South 6th Street, 9th Floor
Minneapolis, MN 55402
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
100
PlumX Metrics