Return predictability of higher-moment CAPM market models

Chi-Hsiou Hung

    Research output: Contribution to journalArticle

    8 Citations (Scopus)

    Abstract

    This paper examines the relative performance of the higher-moment CAPM market models and the CAPM in explaining realised returns and predicting one-period-ahead returns on individual stocks and (both equally- and value-weighted) portfolios of momentum, size and country sorts. The three-moment CAPM, the quadratic-marke model, provides the best ex post estimates in respect of the time-variation in returns on both the return winner and the smallest size portfolios. Further analysis using an orthogonal factor model for tackling multicollinearity confirms the findings. Parameter uncertainty, however, impinges on forecast accuracy and hence hampers the predictive ability of the higher-moment models.
    Original languageEnglish
    Pages (from-to)998-1022
    Number of pages25
    JournalJournal of Business Finance & Accounting
    Volume35
    Issue number7-8
    DOIs
    Publication statusPublished - Sep 2008

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