He is from the Chinese University of Hong Kong and the University of Houston. Kan is from the University of Toronto. Ng is from the City University of Hong Kong. Zhang is from the University of Alberta. We thank Mark Carhart, K. C. Chan, Kent Daniel, Bernard Dumas, Wayne Ferson, Campbell Harvey, Ravi Jagannathan, George Kirikos, Bob Korkie, Srinivasan Maheswaran, Angelo Melino, Madeline Stead, René Stulz (the editor), Yas Tanigawa, Sheridan Titman, Alan White, two anonymous referees, seminar participants at Hong Kong University of Science and Technology, MIT, University of Alberta, University of Maryland, University of Rhode Island, University of Toronto, and participants at the 1994 American Finance Association Meetings in Boston and 1994 Northern Finance Meetings in Vancouver for helpful comments and discussions. Chu Zhang acknowledges partial financial support from the J. D. Muir Fellowship. All remaining errors are ours.
Tests of the Relations Among Marketwide Factors, Firm-Specific Variables, and Stock Returns Using a Conditional Asset Pricing Model
Article first published online: 30 APR 2012
1996 The American Finance Association
The Journal of Finance
Volume 51, Issue 5, pages 1891–1908, December 1996
How to Cite
HE, J., KAN, R., NG, L. and ZHANG, C. (1996), Tests of the Relations Among Marketwide Factors, Firm-Specific Variables, and Stock Returns Using a Conditional Asset Pricing Model. The Journal of Finance, 51: 1891–1908. doi: 10.1111/j.1540-6261.1996.tb05230.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time-varying covariances between stock returns and marketwide factors and time-varying reward-to-covariabilities. The model is then applied to examine the effects of firm size and book-to-market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book-to-market equity ratios. The results indicate that allowing time-varying covariances and time-varying reward-to-covariabilities does little to salvage the traditional asset pricing models.