A number of recent papers have developed multifactor extensions of the classic consumption capital asset pricing model (CCAPM) and generally concluded that conditioning information improves the empirical performance. However, the empirical work to date has primarily employed cross-sectional...

The usual cross-sectional tests of asset pricing models suffer from lack of power because they do not impose the null hypothesis of zero pricing errors on a full set of test assets. This paper proposes a simple remedy using full-rank maximum correlation portfolios obtained by adding extra return...