Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-12T01:38:22.415Z Has data issue: false hasContentIssue false
  • English
  • Français

E-V and E-S Capital Asset Pricing Models: Some Empirical Tests

Published online by Cambridge University Press:  19 October 2009

Ali Jahankhani
Get access Rights & Permissions [Opens in a new window]

Extract

The purpose of this study was to test empirically the risk and return relationships for a mean-variance (E-V) and a mean-semivariance (E-S) capital asset pricing model (CAPM). To date, virtually all empirical work has focused on the Sharpe-Lintner [28,17] E-V model. In the E-V model, the risk of an efficient portfolio is measured by the standard deviation of return, σp. For individual securities, the appropriate measure of risk is the covariance of return on the security and the market portfolio. The E-V model states that the expected return of any security or portfolio equals the risk-free rate of return plus a risk premium that is η times the difference between the expected return on the market portfolio and the risk-free rate of return, i.e.,

where the tildes denote random variables, and

= expected rate of return on security i,

Rf = risk-free rate of return,

= expected rate of return on the market portfolio, and

.

Type
I. Trefftzs Award
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 4 , November 1976 , pp. 513 - 528
Copyright
Copyright © School of Business Administration, University of Washington 1976

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Bey, Roger P., and Porter, R. Burr. “A Test of Capital Budgeting Rules for Handling Risk.” Engineering Economist (forthcoming).Google Scholar
[2]Black, Fischer. “Capital Market Equilibrium with Restricted Borrowing.” Journal of Business, vol. 45, no. 3 (July 1972), pp. 444–455.CrossRefGoogle Scholar
[3]Black, F.; Jensen, M.; and Scholes, M.. “Capital Asset Pricing Model: Some Empirical Results.” In Studies in the Theory of Capital Markets, edited by Jensen, Michael. New York: Praeger, 1972.Google Scholar
[4]Blume, M. S. “Portfolio Theory: A Step toward Its Practical Application.” Journal of Business, vol. 43 (April 1970), pp. 152–173.CrossRefGoogle Scholar
[5]Blume, M. S. “On the Assessment of Risk.” Journal of Finance, vol. 26 (March 1971), pp. 1–10.Google Scholar
[6]Blume, M. S. “Betas and Their Regression Tendencies.” Journal of Finance, vol. 30, no. 3 (June 1975), pp. 785–795.CrossRefGoogle Scholar
[7]Douglas, G. W. “Risk in the Equity Markets: An Empirical Appraisal of Market Efficiency.” Yale Economic Essays, vol. 9 (Spring 1969), pp. 3–45.Google Scholar
[8]Fama, E. F. “Risk, Return, and Equilibrium: Some Clarifying Comments.” Journal of Finance, vol. 23, no. 1 (March 1968), pp. 29–40.Google Scholar
[9]Fama, E. F. “The Behavior of Stock-Market Prices.” Journal of Business, vol. 38 (January 1965), pp. 34–105.CrossRefGoogle Scholar
[10]Fama, E. F., and MacBeth, J. D.. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, May–June 1973, pp. 607–636.Google Scholar
[11]Friend, I., and Blume, M.. “Measurement of Portfolio Performance under Uncertainty.” American Economic Review, vol. 60 (September 1970), pp. 561–575.Google Scholar
[12]Hogan, W. W., and Warren, J. M.. “Toward the Development of an Equilibrium Capital Market Model Based on Semivariance.” Journal of Financial and Quantitative Analysis, no. 9 (January 1974), pp. 1–11.CrossRefGoogle Scholar
[13]Hogan, W. W. “Computation of the Efficient Boundary in the E-S Portfolio Selection Model.” Journal of Financial and Quantitative Analysis, no. 7 (September 1972), pp. 1881–1896.Google Scholar
[14]Jensen, M. C. “The Performance of Mutual Funds in the Period 1945–64.” Journal of Finance, vol. 23 (May 1968), pp. 389–416.Google Scholar
[15]Jensen, M. C. “Risk, the Pricing of Capital Assets, and the Evaluation of Investment Portfolios.” Journal of Business, vol. 43 (April 1969), pp. 167–247.CrossRefGoogle Scholar
[16]Lanziolotti, R. F. “Pricing Objectives in Large Companies.” American Economic Review, vol. 48 (December 1958), pp. 921–940.Google Scholar
[17]Lintner, J. “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, vol. 47 (February 1965), pp. 13–37.Google Scholar
[18]Lintner, J. “Security Prices, Risk and Maximal Gains from Diversification.” Journal of Finance, vol. 20 (December 1965), pp. 587–616.Google Scholar
[19]Long, J. B. Jr. “Consumption-Investment Decisions and Equilibrium in the Securities Market.” In Studies in the Theory of Capital Markets. New York: Praeger, 1972.Google Scholar
[20]Mao, J. C. T. “Models of Capital Budgeting, E-V vs. E-S.” Journal of Financial and Quantitative Analysis, vol. 4 (January 1970), pp. 657–675.Google Scholar
[21]Markowitz, H. M.Portfolio Selection: Efficient Diversification of Investments. New York: John Wiley and Sons, Inc., 1959.Google Scholar
[22]Miller, M. H., and Scholes, M. S.. “Rates of Returns in Relation to Risk: A Re-Examination of Recent Findings.” In Studies in the Theory of Capital Markets, editied by Jensen, Michael. New York: Praeger, 1972.Google Scholar
[23]Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, vol. 34 (October 1966), pp. 768–783.CrossRefGoogle Scholar
[24]Officer, R. R. “A Time Series Examination of the Market Factor of the New York Stock Exchange.” Ph.D. Dissertation, University of Chicago, 1971.Google Scholar
[25]Porter, R. B. “Semivariance and Stochastic Dominance: A Comparison.” American Economic Review, vol. 64, no. 1 (March 1974), pp. 200–206.Google Scholar
[26]Porter, R. B.; Bey, R. P.; and Lewis, D. C.. “The Development of a Mean-Semivariance Approach to Capital Budgeting.” Journal of Financial and Quantitative Analysis, vol. 10 (November 1975), pp. 639–649.CrossRefGoogle Scholar
[27]Quirk, J. P., and Saposnik, R.. “Admissibility and Measurable Utility Functions.” Review of Economic Studies, February 1962, pp. 140–146.CrossRefGoogle Scholar
[28]Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, vol. 19 (September 1964), pp. 425–442.Google Scholar
[29]Sharpe, W. F. “Mutual Fund Performance.” Journal of Business, vol. 39 (January 1966), pp. 119–138.CrossRefGoogle Scholar
[30]Swalm, R. O. “Utility Theory—Insights into Risk Taking.” Harvard Business Review, vol. 44 (November–December 1966), pp. 123–136.Google Scholar
[31]Treynor, J. L. “Toward a Thoery of Market Value of Risky Assets.” Unpublished manuscript, 1961.Google Scholar
[32]Treynor, J. L. “How to Rate Management of Investment Funds.” Harvard Business Review, vol. 43 (January–February 1965), pp. 63–75.Google Scholar
[33]Vasicek, O. A. “Capital Asset Pricing Model with No Riskless Borrowing.” Unpublished manuscript, Wells Fargo Bank, March 1971.Google Scholar