A common approach to comparing asset pricing models with traded factors involves a competition between models in pricing test-asset returns. We find that such practice, while seemingly reasonable, cannot be relied on to determine which is the superior model for several widely accepted criteria...

A Bayesian asset pricing test is derived that is easily computed in closed form from the standard F-statistic. Given a set of candidate traded factors, we develop a related test procedure that permits the computation of model probabilities for the collection of all possible pricing models that...

We show how to conduct asymptotically valid tests of model comparison when the extent of model mispricing is gauged by the squared Sharpe ratio improvement measure. This is equivalent to ranking models on their maximum Sharpe ratios, effectively extending the GRS test to accommodate comparison...

A common approach to comparing asset pricing models involves a competition in pricing test-asset returns. In contrast, we show that for models with traded factors, when the comparison is framed appropriately in terms of success in pricing both the test-asset and factor returns, the extent to...

A Bayesian asset-pricing test is derived that is easily computed in closed-form from the standard F-statistic. Given a set of candidate traded factors, we develop a related test procedure that permits an analysis of model comparison, i.e., the computation of model probabilities for the...

A common approach to comparing asset pricing models with traded factors involves a competition between models in pricing test-asset returns. We find that such practice, while seemingly reasonable, cannot be relied on to determine which is the superior model for several widely accepted criteria...

Since Black, Jensen, and Scholes (1972) and Fama and MacBeth (1973), the two-pass cross-sectional regression (CSR) methodology has become the most popular approach for estimating and testing asset pricing models. Statistical inference with this method is typically conducted under the assumption...

It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size- and B/M-sorted portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used...

In this paper, we conduct a simulation analysis of the Fama and MacBeth (1973) two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return models. We also provide some new analytical results on computational issues, the...

This paper is based on the premise that knowledge about the alphas of one set of funds will influence an investor's beliefs about other funds. This will be true insofar as an investor's expectation about the performance of a fund is partly a belief about the abilities of mutual fund managers as...