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Evaluating multi-beta pricing models: an empirical analysis with spanish market data
Belén Nieto |
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Using Spanish stock market data running from January 1982 to December 1998, this paper examines competing models of price formation in security markets on the basis of the relationship between expected returns and different risk measures. The aim of the work is two-fold: to analyze whether the factor betas considered in each model have a significant role in explaining the behavior of average returns, and to compare the performance of the alternative models studied. We consider both static and conditional models, in which book-to-market and dividend yield aggregated ratios are chosen as predictors of changes in the market information set. We find that conditional models perform relatively better than static models.
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