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Multivariate Tests of Asset Pricing: The Comparative Power of Alternative Statistics

Published online by Cambridge University Press:  06 April 2009

John Affleck-Graves  and
Bill McDonald
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Abstract

This paper examines estimation issues associated with multivariate tests of asset pricing. Two issues are considered: (1) the constraint that the sample size (N) must be less than the time series (T), and (2) the relative effect on power of using the multivariate statistic versus a univariate counterpart. We find that an alternative statistic that allows for large N does not dominate the usual portfolio tests. More notably, we find that the power of a simple diagonal statistic usually dominates the multivariate statistic for cases considered in this study.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 2 , June 1990 , pp. 163 - 185
Copyright
Copyright © School of Business Administration, University of Washington 1990

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