Publications:
Solving an Empirical Puzzle in the Capital Asset Pricing Model
by John Leusner, Jalal D. Akhavein and P.A.V.B. Swamy
OCC Working Paper 97-10, June 1997
Abstract
A long standing puzzle in the Capital Asset Pricing Model (CAPM)
has been the inability of empirical work to validate it. Roll (1977) was the
first to point out this problem, and recently, Fama and French (1992, 1993)
bolstered Roll's original critique with additional empirical results. Does
this mean the CAPM is dead? This paper presents a new empirical approach to
estimating the CAPM. This approach takes into account the differences between
observable and expected returns for risky assets and for the market portfolio
of all traded assets, as well as inherent nonlinearities and the effects of
excluded variables. Using this approach, we provide evidence that the CAPM is
alive and well.
Disclaimer
As with all OCC Working Papers, the opinions expressed in this paper are those of the author alone, and
do not necessarily reflect the views of the Office of the Comptroller of the Currency or the Department of the
Treasury.
Any whole or partial reproduction of material in this paper should include the following citation:
Leusner, Akhavein and Swamy, "Solving an Empirical Puzzle in the Capital Asset Pricing Model," Office
of the Comptroller of the Currency, E&PA Working Paper 97-10, June 1997
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Paper text and footnotes
Tables 1
Tables 2
Table 3
Tables 4
Tables 5
Table 6
Table 7
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