Multivariate testing of the capital asset pricing model in the Hong Kong stock market

The paper provides a multivariate testing of the Sharpe-Lintner and Black Capital Asset Pricing Model (CAPM) for the Hong Kong stock market. Adopting the multivariate approach has many advantages, such as elimination of the error in variables problem encountered in the univariate approach as well as...

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Bibliographic Details
Published in:Applied financial economics 1997-06, Vol.7 (3), p.311-316
Main Author: Chan, Yue-Cheong
Format: Article
Language:English
Subjects:
Asset valuation
Capital assets
CAPM
Financial economics
Hong Kong
Hypotheses
Portfolio management
Price models
Securities markets
Size of enterprise
Statistical analysis
Stock exchange
Studies
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Summary:The paper provides a multivariate testing of the Sharpe-Lintner and Black Capital Asset Pricing Model (CAPM) for the Hong Kong stock market. Adopting the multivariate approach has many advantages, such as elimination of the error in variables problem encountered in the univariate approach as well as provision of an efficiency gain in the parameter estimates. The estimation results reject both versions of CAPM. The source of rejection seems to come from the firm size effect as it is found that small firms (which also have small betas) have earned returns higher than the CAPM has predicted. Furthermore, the estimated return of the zero beta portfolio in the Black CAPM is found to be statistically insignificant.
ISSN:0960-3107
1466-4305
DOI:10.1080/096031097333673