Evaluating asset pricing models in the Korean stock market
- Authors
- Kim, Soon-Ho; Kim, Dongcheol; Shin, Hyun-Soo
- Issue Date
- 4월-2012
- Publisher
- ELSEVIER
- Keywords
- Pricing performance; Asset pricing models; CAPM; APT; Consumption-based CAPM; Intertemporal CAPM; Korean stock markets
- Citation
- PACIFIC-BASIN FINANCE JOURNAL, v.20, no.2, pp.198 - 227
- Indexed
- SSCI
SCOPUS
- Journal Title
- PACIFIC-BASIN FINANCE JOURNAL
- Volume
- 20
- Number
- 2
- Start Page
- 198
- End Page
- 227
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/108815
- DOI
- 10.1016/j.pacfin.2011.09.001
- ISSN
- 0927-538X
- Abstract
- This paper evaluates and compares asset pricing models in the Korean stock market. The asset pricing models considered are the CAPM. APT-motivated models, the Consumption-based CAPM, Intertemporal CAPM-motivated models, and the Jagannathan and Wang conditional CAPM model. By using various test portfolios as well as individual stocks, we conduct time-series tests and cross-sectional regression tests based on individual t-tests, the joint F-tests, the Hansen and Jagannathan (1997) distance, and R-squares. Overall, the Fama and French (1993) five-factor model performs most satisfactorily among the asset pricing models considered in explaining the intertemporal and cross-sectional behavior of stock returns in Korea. The Fama and French (1993) three-factor model, the Chen et al. (2010) three-factor model, and the Campbell (1996) model are the next. The results indicate that the two bond portfolios, term spread and default spread, play an important role in explaining stock returns in Korea. (C) 2011 Elsevier B.V. All rights reserved.
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