| Testing the Linear Asset Pricing Models in the Korean Stock Market |
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Sam Ho Son, Tae Hyuk Kim, Bo Hyun Yoon |
| 한국 주식시장에서의 선형 자산가격결정모형 검정 |
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손삼호, 김태혁, 윤보현 |
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| Abstract |
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We investigate the performances of the main linear asset pricing models such as CAPM, Fama-French 3 factor model, liquidity model, Campbell (1996) model, and non-parametric model with Korean stock returns. To facilitate comparisons, we apply the asset pricing models to a uniform data set and assess Hansen-Jagannathan distance measures for the models In this research, we mainly focus on two issues. One of the issues is whether conditional models are more powerful than unconditional models. In volatile markets such as Korean stock market, the expected returns are likely to vary over time. With time-varying parameters of conditional models, we can expect that the explanatory power of conditional models will increase. The other issue is whether augmenting a cubic market factor improves the performances of the models. It is well known that the return distribution of an emerging market is characterized by excess kurtosis and thick tails. We can expect the power of the models will increase by accommodating the effect of the large volatility of the Korean stock returns. As a result, we found that the performance of the unconditional non-parametric model augmented with a cubic market factor outperformed the other unconditional models. The conditional models outperformed unconditional models for all the instrumental variables that we considered in this paper. The performance improvement was large when we added a cubic market factor to the conditional models. These results have a meaning for constructing a benchmark asset pricing models in the Korean stock market. |
| Key Words:
가격결정함수,일반화 적률법,조건부모형,CMF(Cubic Market Factor),Conditional Asset Pricing Model,Generalized Method of Moment,Hansen-Jagannathan Distance Test,HJ 최소거리 검정,Pricing Kernel |
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