Journal of Financial Economics Vol. 4 No. 2 1977
A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory
Abstract
Testing the two-parameter asset pricing theory is difficult (and currently infeasible). Due to a mathematical equivalence between the individual return/‘beta’ linearity relation and the market portfolio's mean-variance efficiency, any valid test presupposes complete knowledge of the true market portfolio's composition. This implies, inter alia, that every individual asset must be included in a correct test. Errors of inference inducible by incomplete tests are discussed and some ambiguities in published tests are explained.
- DOI
- 10.1016/0304-405x(77)90009-5
- Volume
- 4
- Issue
- 2
- Pages
- 129-176
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex