Augmenting the intertemporal CAPM with inflation: Further evidence from alternative models
Studies consistently find that inflation is an important augmented factor for intertemporal capital asset pricing models (ICAPMs) when pricing the Fama–French 25 size and book-to-market portfolios. We extend this line of research by investigating two alternative ICAPM models (from Michel; Hahn and L...
| Main Authors: | , , , |
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| Format: | Journal Article |
| Published: |
Sage Publications
2017
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| Online Access: | http://hdl.handle.net/20.500.11937/62766 |
| Summary: | Studies consistently find that inflation is an important augmented factor for intertemporal capital asset pricing models (ICAPMs) when pricing the Fama–French 25 size and book-to-market portfolios. We extend this line of research by investigating two alternative ICAPM models (from Michel; Hahn and Lee) and the three-factor model from Hou et al. We find significant evidence that both ICAPMs and Hou et al.’s three-factor model perform better when augmented with inflation than the original models. The augmented models achieve a good model fit with the fewest factors, thus avoiding or alleviating the over-fitting problem. |
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