M. N. Gultekin is from The University of North Carolina at Chapel Hill; N. B. Gultekin is from The Central Bank of the Republic of Turkey and The Wharton School of the University of Pennyslvania. The views expressed here are solely those of the authors and do not necessarily represent the views of the Central Bank. We thank Craig MacKinlay and Mark Grinblatt for their helpful comments. We also benefited greatly from the participants at the Conference on the Empirical Tests of the Arbitrage Pricing Theory held at the University of Southern California during November 21 to 22, 1985, at The University of North Carolina and Duke University Finance Seminar, and at the European Finance Association Meetings in Bern, Switzerland, August 28 to 31, 1985.
Stock Return Anomalies and the Tests of the APT
Article first published online: 30 APR 2012
1987 The American Finance Association
The Journal of Finance
Volume 42, Issue 5, pages 1213–1224, December 1987
How to Cite
GULTEKIN, M. N. and GULTEKIN, N. B. (1987), Stock Return Anomalies and the Tests of the APT. The Journal of Finance, 42: 1213–1224. doi: 10.1111/j.1540-6261.1987.tb04362.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper shows that the empirical tests of the Arbitrage Pricing Theory (APT) model are very sensitive to the anomalies observed in January in the stock returns data. There is a strong seasonal pattern in the estimates of the risk premia from the APT model. The most important implication of the findings in this paper is that the APT model can explain the risk-return relation mostly for January. Once the January returns are excluded from the data, there is no significant relation between the expected stock returns and the risk measures predicted by the APT model.