on the exclusion of assets from tests of the mean variance efficiency of the market portfolio this paper presents an analysis of the testability of the mean variance efficiency of a market index when the returns on some components of the index itself are not perfectly observable the results are basically not supportive of the notion that mean variance efficiency is testable on a subset of the assets bounding the market share of the missing asset and its expected return is not sufficient to produce a valid test when the variance of the missing asset is bounded and the amount of wealth that might be missing is small it is possible in principle to reject correctly the mean variance efficiency of a market index in his famous critique of the asset pricing theory tests roll 7 concludes that the only testable hypothesis associated with the generalized two parameter asset pricing model of black 1 is that the market portfolio is mean variance efficient it has been emphasized by ross 10 and roll 7 that the mean variance efficiency of the market portfolio is mathematically equivalent to a positive linear relation between expected returns and the betas calculated against such a portfolio roll 7 deduces that the theory capm is not testable unless the exact composition of the market portfolio is known and used in the tests this implies that the theory is not testable unless all individual assets are included in the sample errors of type one or two might occur when a market proxy is used instead of the true market portfolio even if the ex ante true expected returns and the covariance variance matrix of the returns on all the assets are used these errors are the result of the choice of the portfolio and as roll puts it even a small misspecification of the proxy s composition can lead to the wrong conclusion the market proxy might be mean variance efficient while the true market portfolio is not and vice versa in principle however there are cases in which the above two conditions are not both necessary to reject the theory one such exception presented by roll 7 is the case in which no totally positive portfolio is efficient if any totally positive market proxy is used a large sample would reject the null hypothesis unambiguously while the market portfolio identification problem constitutes a severe limitation to the testability of the theory the question of the mean variance efficiency of a particular market index with respect to a subset of assets is a typical problem of statistical inference the mean variance efficiency can be tested directly or by

using generalized method of moments to test mean variance efficiency this paper develops tests of unconditional mean variance efflciency under weak distributional assumptions using a generalized method of moments framework these tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i i d using returns for size based portfolios from 1926 to 1988 we show that the conclusion concerning the mean variance effilciency of market indexes can be sensitive to the test considered the application of multivariate statistical techniques in financial economics has become common practice in recent years much of the development has been in the area of testing asset pricing models the assumption that asset returns follow a time invariant multivariate normal distribution permits tests of restrictions on model parameters in a pooled time series cross section framework these tests can be interpreted as tests of the mean variance efficiency of a portfolio or combination of portfolios gibbons 1982 jobson and korkie 1982 stambaugh 1982 shanken 1985 1987 kandel and stambaugh 1987 mackinlay 1987 and gibbons ross and shanken 1989 are examples of work presenting multivariate tests of the capital asset pricing model connor and korajczyk 1988 and lehmann and modest 1988 present multivariate tests of the arbitrage pricing model breeden gibbons and litzenberger 1989 present multivariate tests of the consumption based capm although these papers assume the normality of asset returns little analysis has been conducted to understand the sensitivity of the inferences to violations of this assumption 2 3

the mean variance efficiency of benchmark portfolios uk evidence abstract this paper examines the ex ante mean variance efficiency of four alternative benchmark portfolios within a uk context each of the benchmark portfolios is shown to be mean variance inefficient over the period january 1980 to december 1989 additionally the gibbons et al test statistic of efficiency appears to be fairly robust to violations in the distributional assumptions gibbons m r s a ross and j shanken 1989 test of the efficiency of a given portfolio econometrica 57 1121 1152

optimal privatisation using qualifying auctions this article explores use of auctions for privatising public assets in our model a single insider bidder possesses information about the asset s common value bidders are privately informed about their costs of exploiting the asset due to the insider s presence uninformed bidders face a strong winner s curse in standard auctions we show that the optimal mechanism discriminates against the informationally advantaged bidder it can be implemented via a two stage qualifying auction in the first stage non binding bids are submitted to determine who enters the second stage which consists of a standard second price auction augmented with a reserve price

second price common value auctions under multidimensional uncertainty the literature has demonstrated that second price common value auctions are sensitive to the presence of asymmetries among bidders in a two bidder model bikhchandani 1988 reputation in repeated second price auctions j econ theory 46 97 119 has shown that if it is common knowledge that one bidder has a disadvantage compared to her opponent that bidder almost surely never wins the auction employing a similar two bidder model this paper shows that this result does not carry over when one allows for two sided uncertainty in such case in every equilibrium the disadvantaged type bidder needs to win the auction with strictly positive probability we then solve for the equilibria in two cases one with two types and another with a continuum of types and we show that they converge to the symmetric equilibria of the corresponding symmetric auctions we thus reestablish a lost linkage in the analysis of common value and almost common value auctions

further international evidence on asset pricing the case of the spanish capital market abstract a multivariate framework is used in order to study the price formation of risky assets in the spanish capital market issues regarding the efficiency of the spanish value weighted stock market index the validity of equilibrium considerations the size effect and the nature of the return generating process during january are analyzed

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

some results in the theory of arbitrage pricing this paper derives a stronger version of huberman s recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model it must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals this result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under huberman s bound some applications to empirical tests and performance measurement are also discussed the arbitrage pricing theory is one of several financial pricing models which attempts to explain the cross sectional variation in expected returns on assets in certain respects it is similar to the capital asset pricing model but there are both substantive and subtle differences one of the key advantages of the apt is that it derives a simple linear pricing relation approximating that in the capm without some of the latter s objectionable assumptions perhaps the key disadvantage of the apt is that it provides no clues as to what might be important factors nor as to how to interpret the factor premiums which appear in the pricing equation this paper serves several purposes after reviewing the linear factor model formulation in section i it derives in section ii a stronger version of huberman s 9 recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals this relation must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not a linear factor model with uncorrelated residuals is the appropriate returns generating mechanism section iii specializes this result by eliminating the effects of residual covariances and compares the results here to those of previous apt models when applied to the standard linear factor model with uncorrelated residuals this new pricing bound eliminates arbitrage opportunities which remain under huberman s bound this result also provides for the first time the intuition for the role of residual risk in the approximate pricing relation section v provides an interpretation of the factor premiums and gives a valid asset pricing model interpretation to the apt which is consistent with merton s

exact arbitrage pricing and the minimum variance frontier the author examines the relationship between the arbitrage pricing theory of ross and mean variance analysis in particular conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum variance frontier also a sufficient condition is given under which the existence of a positive minimum variance portfolio of all the assets in the economy will imply the existence of a positive minimum variance portfolio on a subset this means that rejection of the hypothesis of the existence of a positive minimum variance portfolio on a subset satisfying this condition implies rejection for the whole set a growing body of literature explores the relationship between the arbitrage pricing theory apt of ross 13 14 and the mean variance model among the early work in this direction were the papers of chamberlain and rothschild 2 and chamberlain 1 these papers examine a sequence of economies and characterize the relationship in the limit between the mean and portfolio cost functionals and the minimum variance frontier chamberlain 1 also gives a condition under which exact arbitrage pricing will hold dybvig 4 and grinblatt and titman 7 examine equilibrium models in an apt context for a finite economy they derive sharp bounds on the deviation from exact arbitrage pricing recent papers by huberman kandel and stambaugh 9 and grinblatt and titman 8 explore the relationship between the apt and the mean variance model by studying portfolios that can be used as proxies for the factors and examining the relationship these portfolios bear to the minimum variance frontier these two papers also deal with equilibrium models in spite of the number and variety of equilibrium apt models the question of the pricing of factor risk in equilibrium remains largely unexplored this paper makes some progress in addressing that issue by looking at a given equilibrium restriction and studying the constraints it imposes on the vector of factor premia itself the most familiar equilibrium restriction we might study is the central implication of the capital asset pricing model capm that the market portfolio is efficient in particular no portfolio with the same expected return as the market portfolio has a smaller variance the restriction we actually study is weaker than

on multivariate tests of the capm abstract this paper evaluates the power of multivariate tests of the capital asset pricing model the results indicate that when employing an unspecified alternative hypothesis the ability of the tests to distinguish between the capm and other pricing models is poor an upper bound is derived for the distance the alternative distribution of the test statistic can be from the null distribution when the deviations from the capm are due to missing factors this upper bound explains the low power of the tests

indicative bidding an experimental analysis indicative bidding is a practice commonly used in sales of complex and very expensive assets theoretical analysis shows that efficient entry is not guaranteed under indicative bidding since there is no equilibrium in which more qualified bidders are more likely to be selected for the final sale furthermore there exist alternative bid procedures that in theory at least guarantee 100 efficiency and higher revenue for the seller we employ experiments to compare actual performance between indicative bidding and one of these alternative procedures the data shows that indicative bidding performs as well as the alternative procedure in terms of entry efficiency while having other characteristics that favor it over the alternative procedure our results provide an explanation for the widespread use of indicative bidding despite the potential problem identified in the equilibrium analysis

small sample tests of portfolio efficiency abstract this paper presents an eigenvalue test of the efficiency of a portfolio when there is no riskless asset complementing the test of gibbons ross and shanken 1989 besides optimal upper and lower bounds an easily implented numerical method is provided for computing the exact p value our approach makes it possible to draw statistical inferences on the efficiency of a given portfolio both in the context of the zero beta capm and with respect to other linear pricing models as an application using monthly data for every consecutive five year period from 1926 to 1986 we reject the efficiency of the crsp value weighted index for most periods

the likelihood ratio test statistic of mean variance efficiency without a riskless asset abstract the question whether a given porfolio is mean variance efficient is a basic problem of investment analysis mean variance efficiency is also the basis of the capital asset pricing model this paper presents the explicit form of the likelihood ratio test of the hypothesis that a given portfolio or a particular market index is ex ante mean variance efficient in the case where there is no riskless asset geometric relations are illustrated to provide intuition about the constrained maximum likelihood estimators and the test statistic and two simple economic interpretations of the test are given

on the exclusion of assets from tests of the mean variance efficiency of the market portfolio an extension this paper extends kandel s 3 analysis of the testability of the mean variance efficiency of a market index when the return on some component of the index is not perfectly observable in addition to information about the mean and variance of the missing asset considered by kandel we explore the usefulness of information about the beta of the missing asset on the observed sub portfolio in an economy with a riskless asset the results are somewhat more supportive of the notion that mean variance efficiency is testable on a subset of the assets in his important critique of tests of the capital asset pricing model roll 4 emphasizes that empirical results obtained with market proxies need not be indicative of the results that would be obtained in testing the efficiency of the true market portfolio were it observable more recently kandel 3 has analyzed the testability of the mean variance efficiency of a market portfolio when the return on some component of the portfolio is not perfectly observable but partial information about its characteristics is available he finds that knowledge of the market share and expected return of the missing asset is not sufficient to permit a test however bounding the variance of return on the missing asset does make it possible in principle to correctly reject the efficiency of the portfolio provided that the market share of the missing asset is not too large building on the analytical framework established by kandel we explore the value of information about the riskless rate of return and the covariance betwen the return on the missing asset and the observed sub portfolio given a riskless asset the question we address is whether the unobservable market portfolio of risky assets is equal to the tangency portfolio of the efficient frontier we find that knowledge of the market share and expected return of the missing asset is still not sufficient to permit a test of this more restrictive efficiency condition as in the no riskless asset case given a bound on the variance of the missing asset it is sometimes possible to correctly infer that the unobserved portfolio is inefficient this occurs when the market share of the missing asset or the variance of its return is small and the sub portfolio is sufficiently far from the linear

a critical reexamination of the empirical evidence on the arbitrage pricing theory this paper demonstrates that the roll and ross rr and other previously published tests of the apt are subject to several basic limitations there is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the apt model to hold it is found that as one increases the number of securities the number of factors determined increases this increase in the number of factors with larger groups of securities cannot readily be explained by a distinction between priced and nonpriced risk factors as it is impermissible to carry out tests on whether a given risk factor is priced using factor analytic procedures the apt model as exposited by ross 17 18 and extended by huberman 9 has provided the basis of an extensive literature as for example brown and weinstein 1 chen 3 hughes 10 ingersoll 11 jobson 12 reinganum 15 roll and ross rr 16 and shanken 17 to mention but a few it has also been treated in a more general context by chamberlain and rothschild 2 our purpose here is not to comment on this collection of papers many of which are unpublished but to reexamine the evidence presented by rr and point out major pitfalls involved in the empirical methodology employed by them and others who have followed their lead rr claim that on theoretical and more importantly on empirical grounds arbitrage pricing theory apt is an attractive alternative to the capital asset pricing model capm the apt it is argued requires less stringent and presumably more plausible assumptions is more readily testable since it does not require the measurement of the market portfolio and may be better able to explain the anomalies found in the application of the capm to asset returns the acceptability of the apt like that of the capm or any other theory ultimately depends on its ability to explain the relevant empirical evidence our subsequent discussion will show that many of the prqblems associated with the capm are also present in the apt context and that its ability to explain the relevant empirical evidence is not markedly superior moreover it raises questions not only about the rr and related empirical investigations of the apt but also about the testability of that theory in the present state of the art a major part of the problem results from the necessity to break down the universe being analyzed through the apt model this is forced upon the investigator by the fact

potential performance and tests of portfolio efficiency abstract the potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the sharpe 1966 performance measure if a portfolio has a sharpe measure equivalent to the potential performance of the underlying set of assets then it is efficient multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios the procedures are also compared to the gibbons 1982 methodology for testing financial models

auctioning risky conservation contracts conservation auctions have the potential to increase the efficiency of payments to farmers to adopt conservation friendly management practices by fostering competition among them the literature considers bidders that have complete information about the costs of adoption and optimal bidding behavior reflects this information advantage farmers seek information rents and bids decrease when risk aversion increases because farmers are more averse to losing the auction we contribute to the literature by allowing for cost risk our paper shows that farmers must balance the risk of losing the auction thus foregoing information rent with the risk of submitting a bid that is not high enough to pay the costs of adopting conservation practices thus incurring losses we design an experiment to trade off these two risks and examine how risk aversion affects bidding behavior when participants face different sources and levels of risk our experiment contributes to a small literature on experimental auctions with risky product valuations we find that participants decrease their bids as risk aversion increases even in auctions with cost risk suggesting that the risk of losing the auction dominates these findings uncover new challenges for the practical implementation of conservation auctions as an efficient policy instrument

the socioeconomic determinants of ill gotten gains within person changes in drug use and illegal earnings generalizing from the sociology of earnings attainment we develop a conceptual model of social embeddedness in conventional and criminal activities to explain illegal earnings among criminal offenders to isolate the effects of time varying factors such as legal earnings drug use and criminal opportunities we use data from the national supported work demonstration project to estimate fixed effects models predicting month to month changes in illegal earnings we find that criminal earnings are sensitive to embeddedness in conforming work and family relationships criminal experience and the perceived risks and rewards of crime moreover heroin and cocaine use creates a strong earnings imperative that is difficult to satisfy in the low wage labor market and offenders earn far more money illegally when they are using these drugs than during periods of abstinence

factor pricing in a finite economy abstract prior theoretical derivations of the arbitrage pricing theory apt bound an aggregate measure of the deviation of mean asset returns from that predicted by a linear pricing equation it is conceivable given this bound that some assets might be badly mispriced by the model in this paper a more intuitive derivation of the factor pricing equation is presented which describes the deviation on an asset by asset basis the deviation is shown to be small for assets in a realistic finite economy and is arbitrarily close to zero for those assets with arbitrarily small size relative to aggregate wealth it follows that the linear pricing equation provides a good approximation for the mean returns of all traded assets

community and capital in entrepreneurship and economic growth we argue that social integration in the sense of within community interconnectedness and venture capital have a complementary relationship in fostering innovation entrepreneurship and economic gr

multivariate proxies and asset pricing relations abstract a framework is developed in which inferences can be made about the validity of an equilibrium asset pricing relation even though the central aggregate in this relation is unobservable a multivariate proxy for the true market portfolio consisting of an equal weighted stock index and a long term government bond index is employed in an investigation of the sharpe lintner capm the empirical evidence suggests that we can reject the joint hypothesis that a capm is valid and b multiple correlation between the true market portfolio and proxy assets exceeds 0 7 connections to the equilibrium factor pricing literature are also explored

the analytics of performance measurement using a security market line security market line sml analysis while an important tool has never been fully justified from a theoretical standpoint assuming symmetric information and an inefficient index we show that sml analysis can be grossly misleading since in general efficient and inefficient portfolios can plot above and below the sml on a more positive note if sml analysis uses the return on a marketed riskless asset for the zero beta rate efficient portfolios must plot above the sml nonetheless arbitrarily inefficient portfolios also plot above the sml mean variance theory is still the premier theory in finance it continues to survive theoretical criticism and empirical rejection2 and it does so in no small part because of the popularity of using deviations from the security market line sml in performance measurement of portfolio managers and in event studies of the price impact of information the sml is the relationship between risk and return predicted by the mean variance model namely that risk as measured by beta and expected return are linearly related sml analysis interprets deviations in expected return from the sml as abnormal returns above or below what is appropriate or warranted for the amount of risk taken on however in the mean variance model all assets and portfolios lie on the sml ex ante and any ex post deviations from the sml are attributable solely to statistical measurement errors it is for this reason that roll 22 25 has argued that justification for sml analysis must lie outside the original mean variance model the purpose of this paper and its companion paper dybvig and ross 8 is to study whether sml analysis is valid in several plausible theoretical frameworks i e whether theory justifies intuition specifically in this article we examine the validity of using sml analysis when the index portfolio is inefficient in the companion paper we look at performance yale school of management the authors appreciate especially helpful comments from michael brennan gregory conner mike gibbons mark grinblatt jon ingersoll paul pfeiderer and richard roll the first author is grateful for support under the batterymarch fellowship program and the second author is grateful for support from the national science foundation this paper and its campanion paper dybvig and ross 8 evolved from dybvig and ross 7

successful uninformed bidding this paper provides some striking results that arise in the unique symmetric equilibrium of common value multi unit auctions in which some bidders have more information than others we show that in a generalized second price auction with single unit demand bidders with less information do surprisingly well they can have a greater probability of winning than bidders with more information do and may even have a higher expected utility we also find a positive relationship between the success of less informed bidders and a ratio of units for sale to bidders

self employment and the earnings of immigrants we examine the question of the economic returns to immigrants engaged in self employment based on samples of four entrepreneurial immigrants plus control samples of blacks and whites from the 1980 u s public use microdata sample we find large differences in the net effect of self employment depending on the use of a linear absolute dollar values or loglinear relative returns form we examine various explanations for the discrepancy and identify the role of outliers as significant the loglinear form fits the data better but at the cost of obliterating substantively important information namely the preponderance of the self employed among positive outliers effects of excluding the latter from the linear form and the theoretical and policy implications of alternative specifications of the earnings equation are examined excerpt

positively weighted portfolios on the minimum variance frontier duality theory is employed to provide necessary and sufficient conditions for portfolios on the minimum variance frontier to have positive investment proportions in all assets these conditions involve the feasibility of portfolios that have non negative correlation with all assets and positive correlation with at least one using these results several qualitative results concerning the signs of investment proportions in efficient portfolios are proved it is argued that the conditions that ensure all positive weights in efficient portfolios are intuitively compelling and are not unique to the capm with large numbers of assets however the signs of weights in minimum variance portfolios can be very sensitive to slight departures from these conditions due to for example sampling error the behavior of the minimum variance frontier is of general concern to portfolio theory and plays a central role in the study of asset pricing an unresolved question in the theory of the minimum variance frontier involves when it will contain portfolios with positive weights on all assets this paper addresses that question we show that the conditions that ensure positive investment proportions in efficient portfolios have by farkas lemma a simple dual this dual or alternative system of inequalities puts conditions directly on the variances covariances and means of the returns and these conditions can be interpreted intuitively this contrasts with simply considering the first order conditions for variance minimization since these involve the inverted covariance matrix with a large number of assets it can be difficult to translate one s intuitive sense about how assets covary into statements about the inverse of the covariance matrix the duality conditions we derive involve the existence of portfolios that are positively or negatively correlated with all assets indeed we show that a necessary and sufficient condition for no portfolio on the frontier to have all positive weights is the feasibility of an arbitrage or hedge portfolio with weights that sum to zero that has an expected payoff of zero and has non negative correlation with all assets the duality conditions also make it easy to construct examples of the types of covariability that permit or preclude positive investment proportions on all assets in frontier portfolios there are at least three apparent reasons for interest in the signs of weights

an empirical comparison of alternative models of capital asset pricing in germany abstract in an empirical investigation this research finds that the capm is a better explanatory model of risk return relationships in the german stock market than the ccapm

an international capm for bonds and equities abstract previous empirical studies of international capm models have not found much supporting evidence in this paper we suggest reasons why this might have happened and perform new tests using improved models and data a range of monthly capm models are estimated for 1973 1987 for aggretate equities and bonds in germany japan the us and uk the models are an improvement on earlier work in that we integrate equity markets into the analysis instead of focusing exclusively on government bond stocks and we carefully measure the rates of return for both bonds and equities in particular bond returns reflect changes in the price of bonds as well as coupons despite this wider portfolio and the introduction of arch effects in the conditional covariance matrix of errors our model still yields unlikely estimates of the coefficient of relative risk aversion and provides very little explanatory power for expected relative rates of return correcting the icapm for these major deficiencies does not reverse earlier conclusions in the literature a close examination of the residuals of the estimated equations suggest that garch models are not required for our new data set jel fh

a unified beta pricing theory abstract this paper derives ross s mutual fund separation theory and a new equilibrium version of ross s arbitrage pricing theory as special cases of a general theory the paper also reveals that the two theories are identical in their predictions of asset prices and portfolio returns the capital asset pricing model a restricted case of the mutual fund separation theory receives special treatment

posterior predictive and utility based approaches to testing the arbitrage pricing theory abstract to provide a framework for judging the economic significance of departures from the arbitrage pricing theory we adopt a utility based metric based on optimal portfolio choices this measure is examined using both predictive and posterior analysis our predictive analysis shows very large and economically significant departures from the model restrictions however the high level of parameter uncertainty suggests that we cannot conclusively either affirm or reject the apt our conclusions differ markedly from other studies which employ traditional significance testing procedures and in many instances fail to reject the apt restrictions

on correlations and inferences about mean variance efficiency a framework is presented for investigating the mean variance efficiency of an unobservable portfolio based on its correlation with a proxy portfolio a sensitivity analysis derives the highest correlation between the proxy and a portfolio that reverses the inference of a test of sharpe lintner tangency for example the maximum correlation between the value weighted nyse amex portfolio and a portfolio inferred tangent ranges from 0 76 to 0 48 we also test whether the correlation between the proxy and the tangent portfolio exceeds a given level this hypothesis is often rejected for the nyse amex proxy at a correlation of 0 7

an explicit bound on individual assets deviations from apt pricing in a finite economy abstract ross s arbitrage pricing theory apt is a tractible and reasonable alternative to the mean variance model nonetheless understanding of the theory has been obscured by the complexity of the sequence economy models used for motivation by contrast we give a simple and direct derivation of the apt in a finite economy using an explicit bound on the deviations from apt prices across assets a coarse calculation shows that theoretical deviations from apt pricing are negligible in our economy

immigrant self employment the family as social capital and the value of human capital we examine how self employment among asian and hispanic immigrants is affected by family composition and human capital class resources because of collective interests and strong personal ties the family facilitates the pooling of labor power and financial resources enterprising immigrants draw on these resources when establishing and operating small businesses our findings also show the importance of human capital class resources in accounting for immigrant self employment although foreign earned human capital is usually not highly valued in the host labor market immigrants successfully use this human capital to achieve business ownership interethnic variation in personal human capital and family composition accounts for a substantial portion of the observed interethnic variation in self employment the data are drawn from the 1980 five percent pums for greater new york city and los angeles excerpt

yes the apt is testable the arbitrage pricing theory apt has been proposed as an alternative to the meanvariance capital asset pricing model capm this paper considers the testability of the apt and points out the irrelevance for testing of the approximation error we refute shanken s objections including his assertion that roll s critique of the capm is applicable to the apt we also explain the testability of the apt on subsets and we explore the relationship between the apt and the capm the arbitrage pricing theory apt has been the subject of extensive research efforts since it was introduced by ross 36 37 the research has included theoretical papers and a growing empirical literature 2 nonetheless there seems to be some confusion in the literature about the relation between the theoretical underpinnings of the apt and its empirical tests this paper is an attempt to alleviate the confusion to illustrate the issues and to provide a focus section i of this paper is devoted to examining and refuting some points raised in shanken 40 which considers the testability of the apt the underlying premise of the apt is that asset returns ri are generated by a factor model of the form

block holding and keiretsu in japan the effects of capital markets liberalization measures on the stock market abstract long term block holding among large industrial corporations and financial institutions is prevalent in japan little is known about the implications of such business practice on portfolio returns we document the portfolio relationships of parent firms sub firms and specific industry portfolios and we hypothesize that these relationships have changed substantially in japan using certain measures for evaluating portfolios and mean variance spanning we test the hypothesis our empirical results suggest that market efficiency and integration of the japanese stock market may have been greatly enhanced by the japanese government s capital markets liberalization measures implemented in the 1970s and early 1980s

multi beta capm or equilibrium apt a reply in their influential empirical paper roll and ross 11 state we think that in many discussions of the capm scholars were actually thinking of the apt and of process 1 the factor model with just a single factor in light of recent developments in the asset pricing literature i think it can now meaningfully be suggested that in many discussions of the apt scholars may have actually been thinking of a multi beta interpretation of the capm indeed much can be said in support of each of these perspectives for a single paradigm is emerging which integrates fundamental aspects of both the capm and the apt broadly speaking the equilibrium capm paradigm emphasizes the role of covariance between asset returns and an endogenous preference based aggregate while the arbitrage apt paradigm focuses on the covariance between asset returns and factors in the return generating process the emerging equilibrium factor paradigm encompasses each of these relations as well as a third covariance between the factors and the equilibrium aggregate my thesis in shanken 17 was that i the arbitrage paradigm has not produced a refutable hypothesis and that ii recognition of the role of the factor aggregate covariance relation appears to be essential if positive economic significance is to be attributed to asset pricing empirical work dybvig and ross d r attempt to resolve the empirical indeterminacy of the arbitrage paradigm by appealing to the condition that residual variance should not be too large i explain in section ii that this condition is inherently ambiguous from an empirical perspective and does not permit the formulation of a precise testable implication the equilibrium factor models which d r discuss do yield testable restrictions on parameters in the return generating process however consistent with my second point above these restrictions involve joint hypotheses that cannot be verified without observing the entire universe of assets thus contrary to their claim considerations similar to those in roll s 10 critique are indeed relevant to the testing of these models this and other similarities between the equilibrium apt and the capm are discussed in section iii i begin by clarifying some basic terminology

ethnic enclaves and the earnings of self employed latinos in the investigation reported here i have tested the ethnic enclave hypothesis focusing on self employed cuban and mexican immigrants specifically i have compared the economic returns for self employed cuban immigrants in florida with those of mexican immigrants in california and texas the analysis shows that self employed mexican immigrants who remain within mexican enclaves earn substantially lower earnings than those in non enclave environments in contrast the earnings of cuban immigrants self employed within cuban enclaves are comparable to those earned by cubans employed within the general labor market overall my findings are contrary to the ethnic enclave hypothesis which suggests that there are economic advantages associated with owning firms in ethnic enclaves