A Likelihood Ratio Test Of The Zero‐Beta Capm In Australian Equity Returns

Robert W. Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)

Abstract

This paper tests the zero‐beta CAPM with Australian equity returns, using the multivariate approach developed by Gibbons (1982). For the period 1958 to 1987, based on its asymptotic distribution, the likelihood ratio test (LRT) statistic indicates a strong rejection of the model when an equally weighted market index is used. However, small sample adjustments to the test suggested by Jobson and Korkie (1982) and by Shanken (1985) place the validity of this conclusion in some doubt. When a value weighted market index is used for the period 1974 to 1987, the tests reveal at least moderate support for the zero‐beta CAPM.

Original languageEnglish
Pages (from-to)88-95
Number of pages8
JournalAccounting & Finance
Volume31
Issue number2
DOIs
Publication statusPublished - Nov 1991
Externally publishedYes

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