TY  - JOUR
AU  - Lewellen,Jonathan
AU  - Nagel,Stefan
AU  - Shanken,Jay
TI  - A Skeptical Appraisal of Asset-Pricing Tests
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12360
PY  - 2006
Y2  - July 2006
UR  - http://www.nber.org/papers/w12360
L1  - http://www.nber.org/papers/w12360.pdf
N1  - Author contact info:
Jonathan Lewellen
Tuck School of Business at Dartmouth
305 Tuck Hall
Hanover, NH 03755
Tel: 603/646-8650
E-Mail: jon.lewellen@dartmouth.edu

Stefan Nagel
Stanford University
Graduate School of Business
655 Knight Way
Stanford, CA  94305
Tel: 650/724-9762
Fax: 650/725-7979
E-Mail: nagel_stefan@gsb.stanford.edu

Jay A. Shanken
Goizueta Business School
Emory University
1300 Clifton Road
Atlanta, GA 30322
Tel: 404/727-4772
Fax: 404/727-5238
E-Mail: jay_shanken@bus.emory.edu
M2  - featured in NBER digest on 2006-07-17
AB  - It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size- and B/M-sorted portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used in the literature. We argue that asset-pricing tests are often highly misleading, in the sense that apparently strong explanatory power (high cross-sectional R2s and small pricing errors) in fact provides quite weak support for a model. We offer a number of suggestions for improving empirical tests and evidence that several proposed models don%u2019t work as well as originally advertised.
ER  -