Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/8574
Title: An out-of-sample validation study of asset pricing models
Authors: Li, LM
Zhang, SJ 
Keywords: CAPM
Fama-French three-factor model
Least trimmed squares method
Momentum factor
Validation error
Issue Date: 2010
Source: Advances in investment analysis and portfolio management, 2010, v. 4, p. 153-174 How to cite?
Journal: Advances in investment analysis and portfolio management 
Abstract: We compare several asset pricing models according to their ability to explain individual stock returns out of sample. We use the least trimmed squares method to test if it is helpful to exclude unexpected events in the estimation of the Capital Asset Pricing Model (CAPM). The empirical results from our validation experiment show that the Fama-French three-factor model, on average, outperforms both the CAPM and the four-factor model that has an additional momentum factor. But the CAPM performs as well as the three-factor model for large firms and growth firms. In addition, we find that excluding unexpected events does not improve the performance of the CAPM.
URI: http://hdl.handle.net/10397/8574
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