On the Cross-Sectional Relation between Expected Returns, Betas, and Size |
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Authors: | Robert R Grauer |
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Institution: | Department of Economics, Faculty of Business Administration, Simon Fraser University |
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Abstract: | In this paper, I set up scenarios where the mean-variance capital asset pricing model is true and where it is false. Then I investigate whether the coefficients from regressions of population expected excess returns on population betas, and expected excess returns on betas and size, allow us to distinguish between the scenarios. I show that the coefficients from either ordinary least squares or generalized least squares regressions do not allow us to tell whether the model is true or false. |
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