Empirical Asset Pricing Review

The knowledge of portfolio analysis tells the Sharpe ratio and the mean-variance efficiency is important to the rational risk-averse investors in the portfolio selection in a single period. The asset pricing models, such as the CAPM, APT and ICAPM, give directions in search of mean-variance efficient portfolios and mean-variance spanning portfolios on security market. In spite of the joint hypothesis problems in the Efficient Market Hypothesis tests with the asset pricing models, the empirical works increase knowledge about the behavior of security returns. The anomalies that contradict the CAPM in the cross-section of expected returns motivate the multi-factor models such as the Fama-French Three Factor Model and the characteristic models. The search of the distress risk premium in the stock market is a hot topic and would improve the empirical modeling works