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Sensitivity of Multivariate Tests of the Capital Asset-Pricing Model to the Return Measurement Interval

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  • Handa, Puneet
  • Kothari, S P
  • Wasley, Charles

Abstract

The capital asset pricing model's (CAPM) primary empirical implication is a positively sloped linear relation between a security's expected rate of return and its relative risk (beta). Recent research indicates that inferences about the risk-return relation are sensitive to the choice of the return measurement interval. The authors perform multivariate tests of the Sharpe-Lintner CAPM using monthly and annual returns on market-value-ranked portfolios. The CAPM is rejected using monthly returns, a result consistent with previous research. In contrast, the authors fail to reject the CAPM when annual holding period returns are used. Copyright 1993 by American Finance Association.

Suggested Citation

  • Handa, Puneet & Kothari, S P & Wasley, Charles, 1993. "Sensitivity of Multivariate Tests of the Capital Asset-Pricing Model to the Return Measurement Interval," Journal of Finance, American Finance Association, vol. 48(4), pages 1543-1551, September.
    • Handle: RePEc:bla:jfinan:v:48:y:1993:i:4:p:1543-51
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