Empirical Evidence on Security Returns推荐.docxVIP

Chapter13: Empirical Evidence on Security ReturnsChapter OpenerPART??IIIp. 407IN THIS CHAPTER, we consider the empirical evidence in support of the CAPM and APT. At the outset, however, it is worth noting that many of the implications of these models already have been accepted in widely varying applications. Consider the following: 1.?Many professional portfolio managers use the expected return–beta relationship of security returns. Furthermore, many firms rate the performance of portfolio managers according to the reward-to-volatility ratios they maintain and the average rates of return they realize relative to the CML or SML.2.?Regulatory commissions use the expected return–beta relationship along with forecasts of the market index return as one factor in determining the cost of capital for regulated firms.3.?Court rulings on torts cases sometimes use the expected return–beta relationship to determine discount rates to evaluate claims of lost future income.4.?Many firms use the SML to obtain a benchmark hurdle rate for capital budgeting decisions.These practices show that the financial community has passed a favorable judgment on the CAPM and the APT, if only implicitly.???In this chapter we consider the evidence along more explicit and rigorous lines. The first part of the chapter presents the methodology that has been deployed in testing the single-factor CAPM and APT and assesses the results. The second part of the chapter provides an overview of current efforts to establish the validity of multifactor versions of the CAPM and APT. In the third part, we discuss recent literature on so-called anomalies in patterns of security returns and some of the responses to these puzzling findings. Finally, we present interesting research on stock returns that examines the size of the equity risk premium. Conventional wisdom has held for a long time that the history of returns on equities is quite puzzling. Recent studies address the puzzle.???Why lump together empirical wo