Empirical tests of asset pricing models with individual assets: Resolving the errors-in-variables bias in risk premium estimation

• 成果类型: Article
• 署名作者: Jegadeesh, Narasimhan; Noh, Joonki; Pukthuanthong, Kuntara; Roll, Richard; Wang, Junbo
• 署名单位: Emory University; University System of Ohio; Case Western Reserve University; University of Missouri System; University of Missouri Columbia; California Institute of Technology; Louisiana State University System; Louisiana State University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.02.010
• 发表日期: 2019
• 页码: 273-298
• 关键词: Risk premium estimation; Errors-in-variables bias; instrumental variables; individual stocks; Asset pricing models

摘要

To attenuate an inherent errors-in-variables bias, portfolios are widely employed to test asset pricing models; but portfolios might mask relevant risk- or return-related features of individual stocks. We propose an instrumental variables approach that allows the use of individual stocks as test assets, yet delivers consistent estimates of ex post risk premiums. This estimator also yields well-specified tests in small samples. The market risk premium under the capital asset pricing model (CAPM) and the liquidity-adjusted CAPM, premiums on risk factors under the Fama-French three- and five-factor models, and the Hou et al. (2015) four-factor model are all insignificant after controlling for asset characteristics. (C) 2019 Elsevier B.V. All rights reserved.