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Title: An Exact Bayes Test of Asset Pricing Models with Application to International Markets
Authors: Avramov, Doron
Chao, John C.
Type: Article
Keywords: asset pricing model
time varying risk premia
nest pricing
non-nested pricing
Issue Date: 2006
Publisher: Journal of Business of the University of Chicago
Citation: Avramov, Doron, and John Chao, 2006, “An Exact Bayes Test of Asset Pricing Models with Application to International Markets,” Journal of Business 79, 293-323.
Abstract: This paper develops and implements an exact finite-sample test of asset pricing models with time varying risk premia using posterior probabilities. The strength of our approach is that it allows multiple conditional asset pricing specifications, both nested and non-nested, to be tested and compared simultaneously. We apply our procedure to international equity markets by testing and comparing the international CAPM and conditional ICAPM versions of Fama and French (1998). The empirical evidence suggests that the best performing model is the ICAPM with the value premium constructed based on global earnings-to-price ratio.
Required Publisher Statement: © 2006 by Journal of Business of the University of Chicago.
Appears in Collections:Finance Research Works

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