02124cam a22002417 4500001000600000003000500006005001700011008004100028100002400069245011700093260006600210490004100276500002000317520117100337530006101508538007201569538003601641700002401677710004201701830007601743856003701819856002601856w1113NBER20140728154202.0140728s1986 mau||||fs|||| 000 0 eng d1 aFrankel, Jeffrey A.10aAre Asset Demand Functions Determined by CAPM?h[electronic resource] /cJeffrey A. Frankel, William T. Dickens. aCambridge, Mass.bNational Bureau of Economic Researchc1986.1 aNBER working paper seriesvno. w1113 aSeptember 1986.3 aThe Capital Asset Pricing Model (CAPH) says that the responsiveness of asset-demands to expected returns depends (inversely) on the variance-covariance matrix of returns, rather than being an arbitrary set of parameters.Previous tests of CAPM have usually computed covariances of returns around sample means, and then checked whether the riskier assets are those with the higher mean returns. We offer a new technique for testing CAPM. The technique requires the use of time series data on actual asset-holdings, and non-linear maximum likelihood estimation. We claim superiority to earlier tests on three grounds. (1) We allow expected returns to vary freely overtime.(2) The alternative hypothesis is well-specified: asset-demands are linear functions of expected returns that do not depend on the variance-covariance matrix.(3) The test-statistic has a known distribution; it is simply a likelihood ratio test. We try the technique on yearly data, 1954-1980, for household holdings of a portfolio of six assets: short-term bills and deposits, tangible assets, federal debt, state and local debt, corporate debt, and equities. Our test rejects the CAPM hypothesis. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aDickens, William T.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w1113.4 uhttp://www.nber.org/papers/w1113 uurn:doi:10.3386/w1113