D.C. Hung
Return explanatory ability and predictability of non-linear market models
Hung, D.C.
Authors
Abstract
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.
Citation
Hung, D. Return explanatory ability and predictability of non-linear market models
Working Paper Type | Working Paper |
---|---|
Online Publication Date | Aug 1, 2007 |
Publication Date | Aug 1, 2007 |
Deposit Date | Mar 9, 2009 |
Publicly Available Date | Mar 9, 2009 |
Series Title | Durham University Business School Economics Finance Accounting Working Papers |
Keywords | Asset pricing, Non-linearity, Return predictability. |
Public URL | https://durham-repository.worktribe.com/output/1168161 |
Publisher URL | http://www.dur.ac.uk/dbs/faculty/working-papers/ |
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