Testing for Differences in Risk Exposure Among Assets

SIUC Department of Economics Working Paper 01-11

Posted: 9 Jun 2001

See all articles by Scott D. Gilbert

Scott D. Gilbert

Southern Illinois University - Department of Economics

Petr Zemcik

Southern Illinois University - Department of Economics

Date Written: June 2001

Abstract

One purpose of asset pricing models is to explain empirical differences in the time-averaged returns among risky assets. Of interest is whether differences in risk exposure can explain differences in average returns. In the framework of asset return regression systems, the problem is to test equality of parameter values across equations. We examine the performance of Wald and score tests of cross-equation restrictions, with robustness to empirically documented residual heteroskedasticity and autocorrelation. The tests display distortions, but in simulation they perform well when applied parsimoniously. We use the tests to examine the risk exposure of stocks sorted by firm size.

Keywords: Asset pricing, Multivariate regression, Heteroskedasticity, Autocorrelation, Finite sample properties

JEL Classification: C15, C30, G12

Suggested Citation

Gilbert, Scott Dale and Zemcik, Petr, Testing for Differences in Risk Exposure Among Assets (June 2001). SIUC Department of Economics Working Paper 01-11, Available at SSRN: https://ssrn.com/abstract=272616

Scott Dale Gilbert (Contact Author)

Southern Illinois University - Department of Economics ( email )

MC-4515
Carbondale, IL 62901-4515
United States
(618) 453-5065 (Phone)
(618) 453-2717 (Fax)

Petr Zemcik

Southern Illinois University - Department of Economics ( email )

MC-4515
Carbondale, IL 62901-4515
United States

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