On the Cross‐Sectional Relation between Expected Returns, Betas, and Size

  • Author(s): Robert R. Grauer
  • Published: Dec 17, 2002
  • Pages: 773-789
  • DOI: 10.1111/0022-1082.00125

In this paper, I set up scenarios where the mean‐variance capital asset pricing model is true and where it is false. Then I investigate whether the coefficients from regressions of population expected excess returns on population betas, and expected excess returns on betas and size, allow us to distinguish between the scenarios. I show that the coefficients from either ordinary least squares or generalized least squares regressions do not allow us to tell whether the model is true or false.

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