Abstract
We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agent's estimate. We test our model using GMM and compare it to the CAPM. The results suggest that adding an 'estimation factor' to the CAPM helps explain cross-sectional returns and that, unconditionally, this estimation factor carries a negative risk premium.
| Original language | English |
|---|---|
| Journal | Journal of Business Finance and Accounting |
| Volume | 36 |
| Issue number | 5-6 |
| Pages (from-to) | 705-724 |
| Number of pages | 20 |
| ISSN | 0306-686X |
| DOIs | |
| Publication status | Published - 1 Jun 2009 |
| Externally published | Yes |
Keywords
- Asset pricing models
- Equilibrium
- Incomplete information
- Learning