The question that empirical researcher in the capital assets domain have been trying to answer is which model best explains diﬀerences in asset expected returns. For decades, the capital asset pricing model (CAPM) remained the most widely used model for pricing capital assets. The empirically motivated three-factor model (FF3) of Fama and French (1993), with traded size (SMB) and value (HML) factors along with the market excess return (MKT) was, for many years, the premier factor model in the literature, sometimes supplemented by a momentum factor, as suggested by Carhart (1997). In recent years, however, the ﬂoodgates have opened and many alternative factor pricing models have been explored. In practice, it is unlikely that a model’s constraints will hold exactly and so it is of interest to quantify the extent of mispricing for each model. A variety of tools exist in this regard. We have developed a Stata program –
asgrs – that bundles most popular tests for asset pricing models. That program is easy to use, requiring just basic understanding of Stata. The program has the following built-in tests:
- Gibbons, Ross and Shanken (1989) GRS test
- GRS p-value
- Mean alpha of the test assets
- Mean absolute alpha of test assets
- Mean adjusted R²
- Mean standard error (SE)
- Sharpe ratio (SR) of alphas – test assets
- Maximum squared sharp ratio of risk factors
- Ratio of absolute mean alpha to average cross-sectional deviations (Fama and French, 2015)
- [Mean squared adjusted alpha] / [Mean squared adjusted cross-sectional deviations], See Fama and French (2015), Table 5, page 9
asgrs program is available for $ $99 with some example data. You can pay withPayPal or a credit card by clicking on the following button.
For further details, please contact us at:
How to get the program
Once you have paid the fee, just send email to the above address. We shall send the program installation link and the example dataset through email.
Barillas, F., Kan, R., Robotti, C., & Shanken, J. (2020). Model comparison with Sharpe ratios. Journal of Financial and Quantitative Analysis, 55(6), 1840-1874.
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of finance, 52(1), 57-82.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of financial economics, 33(1), 3-56.
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22.