An Unconditional Asset‐Pricing Test and the Role of Firm Size as an Instrumental Variable for Risk

  • Author(s): K. C. CHAN, NAI‐FU CHEN
  • Published: Apr 30, 2012
  • Pages: 309-325
  • DOI: 10.1111/j.1540-6261.1988.tb03941.x

ABSTRACT

In an intertemporal economy where both risk (stock beta) and expected return are time varying, the authors derive a linear relation between the unconditional beta and the unconditional return under certain stationarity assumptions about the stochastic process of size‐portfolio betas. The model suggests the use of long time periods to estimate the unconditional portfolio betas. The authors find that, after controlling for the betas thus estimated, a firm‐size proxy, such as the logarithm of the firm size, does not have explanatory power for the averaged returns across the size‐ranked portfolios.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version