Online citations, reference lists, and bibliographies.

Multivariate Regression Tests Of The Arbitrage Pricing Theory: The Instrumental-variables Approach

K. C. John Wei, C. Lee, A. Chen
Published 1991 · Economics

Cite This
Download PDF
Analyze on Scholarcy
This article expands the theoretical basis upon which empirical testing of the arbitrage pricing theory (APT) rests. Specifically, it specifies linear restrictions for worlds in which the APT holds. These restrictions may, in principle, be tested. Since the regressors in the model are only “noisy” proxies for a specific linear transformation of the factors or mimicking portfolios, testing regressions suffer from an errors-in-variables problem. The standard econometric treatment for this problem is the instrumental-variables approach. A size-based example is employed to compare the test results derived from the instrumental-variables approach to those obtained via the ordinary least squares (OLS) method. The results from both methods cannot reject a two-factor APT for the size-sorted portfolio sample.

This paper is referenced by
Semantic Scholar Logo Some data provided by SemanticScholar