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Tests of the CAPM with Time‐Varying Covariances: A Multivariate GARCH Approach
Author(s) -
NG LILIAN
Publication year - 1991
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1991.tb04628.x
Subject(s) - capital asset pricing model , market portfolio , portfolio , econometrics , economics , multivariate statistics , sharpe ratio , risk premium , conditional variance , autoregressive conditional heteroskedasticity , financial economics , beta (programming language) , mathematics , statistics , computer science , volatility (finance) , programming language
This paper examines an asset pricing model in which the Sharpe‐Lintner CAPM and the zero‐beta CAPM are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward‐to‐risk ratio.