We analyze a new class of linear factor models in which the factors are latent and the covariance matrix of excess returns follows a multivariate stochastic volatility process. We evaluate cross-sectional restrictions suggested by the arbitrage pricing theory (APT), compare competing stochastic...

The existing empirical literature fails to agree on the nature of the intertemporal relation between risk and return. This paper attempts to resolve the issue by estimating a conditional two-factor model motivated by Merton's intertemporal capital asset pricing model. When long-term government...

I present evidence that a moving average (MA) trading strategy dominates buying and holding the underlying asset in a mean-variance sense using monthly returns of value-weighted and equal-weighted US REIT indexes over the period January 1980 until December 2010. The abnormal returns are largely...

Purpose – This paper aims to evaluate the risk-adjusted performance of the management styles of Malaysian mutual funds using nine modified performance evaluation measures generated by the maximum drawdown risk measure (M-DRM) based on the modern portfolio theory. The purpose is to report the...

Purpose – The purpose of this paper is to propose a new and improved version of arbitrage pricing theory (APT), namely, downside APT (D-APT) using the concepts of factors’ downside beta and semi-variance. Design/methodology/approach – This study includes 163 stocks traded on the Malaysian...

Practitioners and academics have spent the past few decades debating the validity and relevance of the capital asset pricing model (CAPM). One of the attributes of the model is an estimate of risk by beta, which in equilibrium describe the behavior of mean-variance (MV) investors. In the MV...

This paper uses a multivariate GARCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CAPM and the three-factor Fama--French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very...

This paper investigates the economic significance of mean-variance spanning tests using three classical statistical tests in a unified framework. I show how to compute confidence intervals about the Sharpe ratios of tangent portfolios, the variance of return of minimum variance portfolios, as...