Hung, D. C. (2007) 'Return explanatory ability and predictability of non-linear market models.', Working Paper. Durham Business School, Durham.
Recent literature supports the pricing of higher-order systematic co-moments of returns. This paper provides some support for the quadratic-market model that is consistent with the three-moment CAPM in explaining time-series returns of the winner and the smallest size portfolios. This study further uses three innovative methodologies in analysing the ability of the linear CAPM, the quadratic- and the cubic-market models in predicting one-period ahead returns on individual stocks, equally- and value-weighted portfolios of momentum, size and country sorts. The results are surprising but important that the higher-moment CAPM market models do not outperform the linear CAPM in the return predictability tests.
|Item Type:||Monograph (Working Paper)|
|Keywords:||Asset pricing, Non-linearity, Return predictability.|
|Full text:||PDF - Published Version (206Kb)|
|Publisher Web site:||http://www.dur.ac.uk/dbs/faculty/working-papers/|
|Record Created:||09 Mar 2009|
|Last Modified:||07 Dec 2012 14:41|
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