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NONNESTED PROCEDURES IN ECONOMETRIC TESTS OF ASSET PRICING THEORIES
Author(s) -
Elyasiani Elyas,
Nasseh Alireza
Publication year - 2000
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2000.tb00812.x
Subject(s) - capital asset pricing model , consumption based capital asset pricing model , economics , econometrics , capitalization , financial economics , arbitrage pricing theory , capital asset , test (biology) , finance , linguistics , philosophy , biology , paleontology
In this paper nonnested tests are used to contrast the performance of the capital asset pricing (CAPM) and consumption capital asset pricing (CCAPM) theories in describing the U.S. stock market. The procedures employed include the N ‐test, the NT ‐test, the W ‐test, the J ‐test, and the Encompassing test. The tests are carried out using data on firms as well as portfolios based on beta, capitalization, and Standard Industrial Classification codes. The findings indicate that although during 1973–82 the CAPM dominates the CCAPM, during 1978–87 the results are mixed, and during 1983–92 the CCAPM dominates. The finding in favor of the CCAPM in 1983–92 conflicts with much of the existing literature, which favors the CAPM.