Augmenting the intertemporal CAPM with inflation: Further evidence from alternative models
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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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Shi, Q.; Li, B.; Cheung, Adrian; Chung, R. (2017)© 2017, © The Author(s) 2017. 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 ...
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Investigating linear multi-factor models in asset pricing: considerable supplemental evidence<sup>*</sup>Shi, Q.; Cheung, Adrian; Li, B. (2018)© 2018 City University of Hong Kong and National Taiwan University The literature has offered an interesting debate about whether the performance of Fama-French’s three-factor benchmark model is inadequate because it fails ...