A test of the intertemporal CAPM in the Australian equity market

Robert Faff*, Howard Chan

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

The major focus of this paper is to test an intertemporal CAPM using a gold bullion price variable as a potential hedging factor. In summary, the major findings of the study are as follows. Firstly, multivariate tests give a resounding rejection of the hypothesis that the gold exposures are jointly equal to zero. Second, based on the outcome of some GMM tests of the restrictions imposed by the two-factor intertemporal CAPM when a risk-free asset is assumed not to exist, the model could not be rejected at the 5% level of significance. Finally, a GMM-based test of the restrictions imposed by the two-factor intertemporal CAPM when a risk-free asset is assumed to exist again provides strong evidence in favour of the null model. However, despite its generally strong showing, the ICAPM does not seem to be a total solution to the asset pricing puzzle.

Original languageEnglish
Pages (from-to)175-188
Number of pages14
JournalJournal of International Financial Markets, Institutions and Money
Volume8
Issue number2
DOIs
Publication statusPublished - Jun 1998
Externally publishedYes

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