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Asset pricing models: a comparison

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  • Edward R. Lawrence
  • John Geppert
  • Arun J. Prakash

Abstract

We empirically test and compare the performance of the traditional capital asset pricing model (CAPM), the three-moment CAPM and the Fama-French (FF) three-factor model using the FF 25 portfolios data. Based on the time-series and the cross-sectional tests, the FF three-factor model outperforms the other models. In the cross-sectional tests, the three-moment CAPM has a higher R2 than CAPM but in the time-series regression, the performances of CAPM and the three-moment CAPM are comparable.

Suggested Citation

  • Edward R. Lawrence & John Geppert & Arun J. Prakash, 2007. "Asset pricing models: a comparison," Applied Financial Economics, Taylor & Francis Journals, vol. 17(11), pages 933-940.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:11:p:933-940
    DOI: 10.1080/09603100600892863
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    References listed on IDEAS

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    2. Huffman, Stephen P. & Makar, Stephen D. & Beyer, Scott B., 2010. "A three-factor model investigation of foreign exchange-rate exposure," Global Finance Journal, Elsevier, vol. 21(1), pages 1-12.
    3. Serkan Yilmaz Kandir & Ahmet Erismis & Ilhan Ozturk, 2015. "Investigating Exchange Rate Exposure of Energy Firms: Evidence from Turkey," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(6), pages 729-743.
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    5. Pablo Cristini Guedes & Fernanda Maria Müller & Marcelo Brutti Righi, 2023. "Risk measures-based cluster methods for finance," Risk Management, Palgrave Macmillan, vol. 25(1), pages 1-56, March.
    6. Wu, Po-Chin & Liu, Shiao-Yen & Chen, Che-Ying, 2016. "Re-examining risk premiums in the Fama–French model: The role of investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 154-171.

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