Can consumption growth risk (or consumption beta) serve a better measure of risk than market beta? This paper answers this question by testing and comparing the performance of the traditional Capital Asset Pricing Model (CAPM) and consumption-based CAPM (CCAPM) across seven financial market sub-sectors in the emerging Taiwan stock market. The empirical performance of the CAPM is encouraging. Th...

We study the impact of delegated portfolio management on asset pricing in a large-scale experimental setting. As predicted by standard models, in early rounds of our experiments delegation has no impact on pricing; we replicate CAPM pricing as in earlier experiments without delegation. However, CAPM pricing fails in later rounds. We attribute this to the fund flows: investors tend to increase a...

Many tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio...

Markowitz and Sharpe won the Nobel Prize in Economics for the development of MeanVariance (M-V) analysis and the Capital Asset Pricing Model (CAPM). Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. In deriving the CAPM, Sharpe, Lintner and Mossin assume expected utility (EU) maximisation in the face of risk aversion. Kahneman and Tversky suggest Prospect Theory ...

We develop structural econometric tests of asset pricing theory for application to data from experimental financial markets. The tests differ from those used in the analysis of field data because they verify the consistency between prices and allocations, as opposed to merely testing whether only prices satisfy equilibrium restrictions. Our tests also differ from standard field tests because th...

This paper re-examines the tests of the Sharpe-Lintner Capital Asset Pricing Model (CAPM). The null that the CAPM intercepts are zero is tested for ten size-based stock portfolios and for twenty five book-to-market sorted portfolios using five-year, ten-year and longer sub-periods during 1965-2004. The paper shows that the evidence for rejecting the CAPM on statistical grounds is weaker than th...

For over 30 years academics and practitioners have been debating about the merits of the CAPM. One of the characteristics of this model is that it measures risk by beta, which follows from an equilibrium in which investors display mean-variance behavior. In that framework, risk is assessed by the variance of returns, a questionable and restrictive measure of risk. The semivariance of returns is...