Report

Econometric evaluation of asset pricing models

Abstract: We provide a brief review of the techniques that are based on the Generalized Method of Moments (GMM) and used for evaluating capital asset pricing models. We first develop the CAPM and multi-beta models and discuss the classical two-stage regression method originally used to evaluate them. We then describe the pricing kernel representation of a generic asset pricing model; this representation facilitates use of the GMM in a natural way for evaluating the conditional and unconditional versions of most asset pricing models. We also discuss diagnostic methods that provide additional insights.

Keywords: capital asset pricing model;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 1996

Number: 206