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Article: A Pricing Operator-Based Testing Foundation for a Class of Factor Pricing Models

TitleA Pricing Operator-Based Testing Foundation for a Class of Factor Pricing Models
Authors
KeywordsFactor pricing
APT
Law of One Price
Empirical tests of asset pricing
Issue Date1994
PublisherWiley-Blackwell Publishing, Inc.. The Journal's web site is located at http://www.wiley.com/bw/journal.asp?ref=0960-1627
Citation
Mathematical Finance, 1994, v. 4 n. 2, p. 121–141 How to Cite?
AbstractThis paper develops a cross-market version of factor pricing models. It is shown that exact factor pricing holds across two submarkets with respect to their common factors if and only if the unique pricing operator for the first submarket is equal to that for the other submarket with probability 1. We define an APT measure as the squared distance between the two pricing operators. Then, testing whether this measure is zero is equivalent to testing exact factor pricing across the two submarkets. Since the estimation of this measure does not require parameterizing and extracting the underlying factors, one can test factor pricing models without knowing any factors. In addition, we present a randomization procedure so that one can use it to conduct a more comprehensive investigation on the empirical robustness of factor pricing models.
Persistent Identifierhttp://hdl.handle.net/10722/222294
ISSN
2015 Impact Factor: 2.283
2015 SCImago Journal Rankings: 1.671

 

DC FieldValueLanguage
dc.contributor.authorChen, Z-
dc.contributor.authorKnez, PJ-
dc.date.accessioned2016-01-11T08:19:48Z-
dc.date.available2016-01-11T08:19:48Z-
dc.date.issued1994-
dc.identifier.citationMathematical Finance, 1994, v. 4 n. 2, p. 121–141-
dc.identifier.issn0960-1627-
dc.identifier.urihttp://hdl.handle.net/10722/222294-
dc.description.abstractThis paper develops a cross-market version of factor pricing models. It is shown that exact factor pricing holds across two submarkets with respect to their common factors if and only if the unique pricing operator for the first submarket is equal to that for the other submarket with probability 1. We define an APT measure as the squared distance between the two pricing operators. Then, testing whether this measure is zero is equivalent to testing exact factor pricing across the two submarkets. Since the estimation of this measure does not require parameterizing and extracting the underlying factors, one can test factor pricing models without knowing any factors. In addition, we present a randomization procedure so that one can use it to conduct a more comprehensive investigation on the empirical robustness of factor pricing models.-
dc.languageeng-
dc.publisherWiley-Blackwell Publishing, Inc.. The Journal's web site is located at http://www.wiley.com/bw/journal.asp?ref=0960-1627-
dc.relation.ispartofMathematical Finance-
dc.rightsPreprint This is the pre-peer reviewed version of the following article: [FULL CITE], which has been published in final form at [Link to final article]. Authors are not required to remove preprints posted prior to acceptance of the submitted version. Postprint This is the accepted version of the following article: [full citation], which has been published in final form at [Link to final article].-
dc.subjectFactor pricing-
dc.subjectAPT-
dc.subjectLaw of One Price-
dc.subjectEmpirical tests of asset pricing-
dc.titleA Pricing Operator-Based Testing Foundation for a Class of Factor Pricing Models-
dc.typeArticle-
dc.identifier.emailChen, Z: zchen99@hku.hk-
dc.identifier.authorityChen, Z=rp02041-
dc.identifier.doi10.1111/j.1467-9965.1994.tb00053.x-
dc.identifier.volume4-
dc.identifier.issue2-
dc.identifier.spage121–141-
dc.identifier.epage121–141-
dc.publisher.placeUnited States-

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