skeptical appraisal of asset-pricing tests
By: Jonathan Lewellen, Stefan Nagel, Jay Shanken.
Contributors: Nagel, Stefan.; Shanken, Jay.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 12360.; Working paper series (National Bureau of Economic Research) -- working paper no. 12360.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 42
Subjects: Assets (Accounting) -- Prices -- Econometric models
Description: "It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size- and B/M-sorted portfolios, something many models seem to do remarkably well.  In this paper, we review and critique the empirical methods used in the literature.  We argue that asset-pricing tests are often highly misleading, in the sense that apparently strong explanatory power (high cross-sectional R2s and small pricing errors) in fact provides quite weak support for a model.  We offer a number of suggestions for improving empirical tests and evidence that several proposed models don't work as well as originally advertised"--National Bureau of Economic Research web site.
Notes: "July 2006."

Includes bibliographical references (p. 38-40).

Also available in PDF from the NBER world wide web site (www.nber.org).