Testing the lower partial moment asset-pricing models in emerging markets

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

Abstract

In the literature, the multivariate tests of asset-pricing models are developed focusing on the characteristics of developed markets. For example, the pioneering Gibbons’ (1982) test of the “capital asset-pricing model” (CAPM) and Harlow and Rao’s (1989) test of the “mean lower partial moment” (MLPM) model both employ a “likelihood ratio test” that assumes multivariate normality of monthly asset returns. Emerging market returns are known to be non-normal and have greater predictability than those of developed markets. Considering these stylized facts, the paper extends Harlow-Rao’s likelihood ratio test to develop multivariate tests robust to these features. In a sample of portfolio data from an emerging market, namely Pakistan, it is shown that multivariate tests of both CAPM and MLPM individually do not reject the restriction of the two financial models, respectively. However, a more powerful nested test of CAPM against MLPM with bootstrap p-values rejects the CAPM in favor of MLPM.

Original languageEnglish
Title of host publicationFinancial Econometrics Modeling
Subtitle of host publicationMarket Microstructure, Factor Models and Financial Risk Measures
EditorsGreg N Gregoriou, Razvan Pascalau
Place of PublicationBasingstoke UK
PublisherPalgrave Macmillan
Pages154-175
Number of pages22
Edition1st
ISBN (Electronic)9780230298101
ISBN (Print)9780230283626
DOIs
Publication statusPublished - 2011

Cite this

Iqbal, J., Brooks, R., & Galagedera, D. (2011). Testing the lower partial moment asset-pricing models in emerging markets. In G. N. Gregoriou, & R. Pascalau (Eds.), Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures (1st ed., pp. 154-175). Basingstoke UK: Palgrave Macmillan. https://doi.org/10.1057/9780230298101_6
Iqbal, Javed ; Brooks, Robert ; Galagedera, Don. / Testing the lower partial moment asset-pricing models in emerging markets. Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures. editor / Greg N Gregoriou ; Razvan Pascalau. 1st. ed. Basingstoke UK : Palgrave Macmillan, 2011. pp. 154-175
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Iqbal, J, Brooks, R & Galagedera, D 2011, Testing the lower partial moment asset-pricing models in emerging markets. in GN Gregoriou & R Pascalau (eds), Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures. 1st edn, Palgrave Macmillan, Basingstoke UK, pp. 154-175. https://doi.org/10.1057/9780230298101_6

Testing the lower partial moment asset-pricing models in emerging markets. / Iqbal, Javed; Brooks, Robert; Galagedera, Don.

Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures. ed. / Greg N Gregoriou; Razvan Pascalau. 1st. ed. Basingstoke UK : Palgrave Macmillan, 2011. p. 154-175.

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

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Iqbal J, Brooks R, Galagedera D. Testing the lower partial moment asset-pricing models in emerging markets. In Gregoriou GN, Pascalau R, editors, Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures. 1st ed. Basingstoke UK: Palgrave Macmillan. 2011. p. 154-175 https://doi.org/10.1057/9780230298101_6