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Wiley InterScience | |||||||||||||||
  Accounting & FinanceVolume 47 Issue 1, Pages 69 - 83 Published Online: 27 Feb 2007 Journal compilation © 2009 Accounting and Finance Association of Australia and New Zealand Published on behalf of The Accounting and Finance Association of Australia and New Zealand
Abstract | References | Full Text: HTML, PDF (Size: 126K) | Related Articles | Citation Tracking  Extending the capital asset pricing model: the reward beta approach The author thanks the participants at research seminars at Melbourne University, Royal Melbourne Institute of Technology, Griffith University, and the 9th Australasian Institute of Banking and Finance, Banking and Finance Conference for their helpful comments on this paper. Thanks also go to two anonymous referees whose comments helped improve this paper. Copyright © The Author Journal compilation © 2007 AFAANZ KEYWORDS Asset pricing • Book-to-market effect • capital asset pricing model • Reward beta • Size effect KEYWORDS G12 • G24 • G31 Abstract
This paper offers an alternative method for estimating expected returns. The proposed reward beta approach performs well empirically and is based on asset pricing theory. The empirical section compares this approach with the capital asset pricing model (CAPM) and the Fama–French three-factor model. In out-of-sample testing, both the CAPM and the three-factor model are rejected. In contrast, the reward beta approach easily passes the same test. In robustness checks, the reward beta approach consistently outperforms both the CAPM and the three-factor model. Received 6 March 2006; accepted 11 May 2006 by Robert Faff (Editor) doi: 10.1111/j.1467-629x.2007.00202.x | 
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