Search Constraints

Filtering by: Creator Wang, Zhenyu Remove constraint Creator: Wang, Zhenyu

Search Results

  • Db78tc167?file=thumbnail
    Creator: Jagannathan, Ravi and Wang, Zhenyu
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 165
    Abstract:

    In empirical studies of the CAPM, it is commonly assumed that, (a) the return to the value-weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama and French (1992) find that the relation between average return and beta is flat. We argue that these two auxiliary assumptions are not reasonable. We demonstrate that when these assumptions are relaxed, the empirical support for the CAPM is very strong. When human capital is also included in measuring wealth, the CAPM is able to explain 28% of the cross sectional variation in average returns in the 100 portfolios studied by Fama and French. When, in addition, betas are allowed to vary over the business cycle, the CAPM is able to explain 57%. More important, relative size does not explain what is left unexplained after taking sampling errors into account.

    Subject (JEL): G12 - Asset Pricing; Trading Volume; Bond Interest Rates
  • Nk322d449?file=thumbnail
    Creator: Jagannathan, Ravi and Wang, Zhenyu
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 208
    Abstract:

    Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross-section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross-section of average returns.

    Subject (JEL): G10 - General Financial Markets: General (includes Measurement and Data)
  • Cv43nw822?file=thumbnail
    Creator: Jagannathan, Ravi and Wang, Zhenyu
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 517
    Abstract:

    In empirical studies of the CAPM, it is commonly assumed that (a) the return to the value weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama and French (1992) find that the relation between average return and beta is flat. We argue that these two auxiliary assumptions are not reasonable. We demonstrate that when these assumptions are relaxed, the empirical support for the CAPM is surprisingly strong. When human capital is also included in measuring wealth, the CAPM is able to explain 28 percent of the cross sectional variation in average returns in the 100 portfolios studied by Fama and French. When, in addition, betas are allowed to vary over the business cycle, the CAPM is able to explain 57 percent. More important, relative size does not explain what is left unexplained after taking sampling errors into account.

    Keyword: Stock prices and Capital
    Subject (JEL): G12 - Asset Pricing; Trading Volume; Bond Interest Rates
  • Gq67jr25p?file=thumbnail
    Creator: Jagannathan, Ravi and Wang, Zhenyu
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 517
    Abstract:

    In empirical studies of the CAPM, it is commonly assumed that (a) the return to the value weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama and French (1992) find that the relation between average return and beta is flat. We argue that these two auxiliary assumptions are not reasonable. We demonstrate that when these assumptions are relaxed, the empirical support for the CAPM is surprisingly strong. When human capital is also included in measuring wealth, the CAPM is able to explain 28 percent of the cross sectional variation in average returns in the 100 portfolios studied by Fama and French. When, in addition, betas are allowed to vary over the business cycle, the CAPM is able to explain 57 percent. More important, relative size does not explain what is left unexplained after taking sampling errors into account.

    Keyword: Stock prices and Capital
    Subject (JEL): G12 - Asset Pricing; Trading Volume; Bond Interest Rates