Dramatic fluctuations in the stock market raise questions about whether actual prices correspond to fundamentals. Even if there are "bubbles", they may not distort real behaviour if managers base investment decisions on fundamentals. Using a new specification testing strategy based on combining...

In this paper, we test a version of the conditional CAPM with respect to a local market portfolio, proxied by the Brazilian stock index during the period 1976-1992. We also test a conditional APT modeI by using the difference between the 3-day rate (Cdb) and the overnight rate as a second factor...