The Return Performance of Cubic Market Model: An Application to Emerging Markets |
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| Authors: | Andrés Mora-Valencia Javier Perote José Elías Tobar Arias |
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| Institution: | 1. School of Management, Universidad de los Andes, Bogotá, Colombia;2. Faculty of Economics and Business, Department of Economics, University of Salamanca, Salamanca, Spain;3. School of Business, Universidad Icesi, Cali, Colombia |
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| Abstract: | This article studies the performance of the high-order moment capital asset pricing model (CAPM) market models in emerging markets. We apply the cubic market model (4-moment CAPM) to 16 emerging market stock indices ranging from January 2010 to September 2015. Performance of the model is evaluated through the Fama and MacBeth’s two-step regression and through different corrections proposed in the literature, as well as generalized method of moments (GMM) estimation. According to Fama–MacBeth’s procedure, CAPM, the quadratic and cubic market models seem to be insignificant for the analyzed sample; however, the GMM estimation shows that quadratic model is valid for Indian, Polish, and Thai country indices, whereas cubic market model is accurate for Indian country index. |
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| Keywords: | cubic market model emerging markets equity premium GMM |
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