Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-12-05T02:18:18.901Z Has data issue: false hasContentIssue false
  • English
  • Français

A Note on the Interdependent Structure of Security Returns

Published online by Cambridge University Press:  19 October 2009

Cheng F. Lee
Get access Rights & Permissions [Opens in a new window]

Extract

S-L have derived a simultaneous equation CAPM to offer a robust test for the interdependent assumption of the single equation CAPM. However, their empirical results are subject to the multicollinearity problem associated with 2SLS. For improving their results, several alternative estimation methods are used to estimate a seven-equation system for the oil industry. In accordance with both the multicollinearity criterion and residual analysis, it is found the modified 2SLS is the most appropriate method to be used to estimate the S-L model. From the results obtained from the modified 2SLS, it is shown that the market rate of return still is a relatively important factor in predicting the movement of capital market in the simultaneous equation CAPM.

After applying a better estimation method to the S-L simultaneous equation CAPM, it is shown that the S-L model has given us the interesting interrelationship of capital asset pricing within a particular risk class.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 1 , March 1976 , pp. 73 - 86
Copyright
Copyright © School of Business Administration, University of Washington 1976

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

The University of Georgia. The author thanks Joseph M. Bonin, and a referee for their comments.

References

REFERENCES

[1] Cochran, W. G. “Some Effects of Errors of Measurement on Multiple Correlation Coefficients.” Journal of American Statistical Association, Vol. 65 (1972), pp. 22–34.CrossRefGoogle Scholar
[2] Fama, E. F. “Risk, Return and Equilibrium: Some Clarifying Comments.” Journal of Finance, Vol. 23, No. 1 (1968), pp. 29–40.CrossRefGoogle Scholar
[3] Fox, K. A. Intermediate Economic Statistics. New York: John Wiley and Sons, Inc. (1968).Google Scholar
[4] Haitovsky, Y. “A Note on the Maximization of .” The American Statistician, Vol. 23 (1969), pp. 20–21.Google Scholar
[5] Klein, L. R., and Nakamura, Mitsugu. “Singularity in the Equation Systems of Econometrics: Some Aspects of the Problem of Multicollinearity.” Internal Economic Review, Vol. 3 (1962), pp. 274–299.CrossRefGoogle Scholar
[6] Kmenta, J. Element of Econometric. New York: The MacMillan Company (1971).Google Scholar
[7] Lintner, J. “Security Prices, Risk and Maximal Gains from Diversification.” Journal of Finance, Vol. 20 (1965), pp. 587–616.Google Scholar
[8] Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, Vol. 34 (1966), pp. 768–783.CrossRefGoogle Scholar
[9] Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risks.” Journal of Finance, Vol. 19 (1964), pp. 425–442.Google Scholar
[10] Simkowitz, M. A., and Logue, D. E.. “The Interdependent Structure of Security Returns.” Journai of Financial and Quantitative Analysis, Vol. 8, No. 2 (1973), pp. 259–272.CrossRefGoogle Scholar
[11] Zellner, A. “An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests for Aggregation Bias.” Journal of the American Statistical Association (1962), pp. 348–368.CrossRefGoogle Scholar