Evaluating Conditional Asset Pricing Models for the German Stock Market


Schrimpf, Andreas ; Schröder, Michael ; Stehle, Richard


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URL: http://ub-madoc.bib.uni-mannheim.de/1367
URN: urn:nbn:de:bsz:180-madoc-13675
Document Type: Working paper
Year of publication: 2006
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: G 12 ,
Subject headings (SWD): Aktienmarkt , Capital-Asset-Pricing-Modell
Abstract: We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.
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Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Schrimpf, Andreas ; Schröder, Michael ; Stehle, Richard (2006) Evaluating Conditional Asset Pricing Models for the German Stock Market. Open Access [Working paper]
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