A test for the ex ante efficiency of a given portfolio of assets is analyzed. The relevant statistic has a tractable small sample distribution. Its power function is derived and used to study the sensitivity of the test to the portfolio choice and to the number of assets used to determine the ex...

We develop a simple parametric model in which hypotheses about predictability, mispricing, and the risk-return tradeoff can be evaluated simultaneously, while allowing for time variation in both risk and expected return. Most of the return predictability based on aggregate payout yield is...

We conduct a simulation analysis of the Fama and MacBeth[1973. Risk, returns and equilibrium: empirical tests. Journal of Political Economy 71, 607¨C636.] two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return...

An integrated econometric view of maximum likelihood methods and more traditional two-pass approaches to estimating beta-pricing models is presented. Several aspects of the well-known errors-in-variables problem are considered, and an earlier conjecture concerning the merits of simultaneous...

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...