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Tests of Conditional Asset Pricing with Time-Varying Moments and Risk Prices

Published online by Cambridge University Press:  06 April 2009

Harry Turtle ,
Adolf Buse  and
Bob Korkie
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Abstract

This paper tests conditional capital asset pricing models in a multivariate GARCH framework employing both constant and time-varying prices of market and bond risk. Depending on the interpretation of the market portfolio, the ICAPM with one hedge portfolio or the two-factor myopic CAPM are supported using weekly data from July 1983 to December 1989. In contrast, we reject the myopic single-factor CAPM under a constant price of market risk. We find that interest rate risk is highly significant, which suggests that previous rejections of the conditional CAPM using only stock market data may be due to omitted hedge terms or an incomplete market factor.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 29 , Issue 1 , March 1994 , pp. 15 - 29
Copyright
Copyright © School of Business Administration, University of Washington 1994

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