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Return Predictability of Higher-Moment CAPM Market Models

Hung, C-H.

Authors

C-H. Hung



Abstract

This paper examines the relative performance of the higher-moment CAPM market models and the CAPM in explaining realised returns and predicting one-period-ahead returns on individual stocks and (both equally- and value-weighted) portfolios of momentum, size and country sorts. The three-moment CAPM, the quadratic-marke model, provides the best ex post estimates in respect of the time-variation in returns on both the return winner and the smallest size portfolios. Further analysis using an orthogonal factor model for tackling multicollinearity confirms the findings. Parameter uncertainty, however, impinges on forecast accuracy and hence hampers the predictive ability of the higher-moment models.

Citation

Hung, C. (2008). Return Predictability of Higher-Moment CAPM Market Models. Journal of Business Finance and Accounting, 35(7-8), 998-1022. https://doi.org/10.1111/j.1468-5957.2008.02102.x

Journal Article Type Article
Publication Date Sep 30, 2008
Deposit Date May 22, 2009
Journal Journal of Business Finance and Accounting
Print ISSN 0306-686X
Electronic ISSN 1468-5957
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 35
Issue 7-8
Pages 998-1022
DOI https://doi.org/10.1111/j.1468-5957.2008.02102.x
Keywords Asset pricing, Higher-moment CAPM, Return predictability.
Public URL https://durham-repository.worktribe.com/output/1532126

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