Empirical Tests of Asset Pricing Models with Individual Stocks

Download or read book Empirical Tests of Asset Pricing Models with Individual Stocks written by Narasimhan Jegadeesh and published by . This book was released on 2015 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.