Abstract
This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio model and models of market equilibrium derived from the two-parameter portfolio model. We cannot reject the hypothesis of these models that the pricing of common stocks reflects the attempts of risk-averse investors to hold portfolios that are "efficient" in terms of expected value and dispersion of return. Moreover, the observed "fair game" properties of the coefficients and residuals of the risk-return regressions are consistent with an "efficient capital market"--that is, a market where prices of securities
Keywords
EconomicsEconometricsPortfolioExpected returnCapital asset pricing modelRisk–return spectrumMarket portfolioStock exchangeFinancial economicsMarket riskRate of return on a portfolioModern portfolio theory
Related Publications
A Capital Asset Pricing Model with Time-Varying Covariances
The capital asset pricing model provides a theoretical structure for the pricing of assets with uncertain returns. The premium to induc e risk-averse investors to bear risk is p...
An Intertemporal Capital Asset Pricing Model
An intertemporal model for the capital market is deduced from the portfolio selection behavior by an arbitrary number of investors who aot so to maximize the expected utility o...
Liquidity and the 1987 stock market crash
T he Crash of October 1987 was a puzzling event puzzling not only for what happened on October 19, but also for what subsequently did not happen. In spite of the magnitude and m...
Private Information, Trading Volume, and Stock-Return Variances
New evidence is provided on the determinants of stock-return variances. First, when the Tokyo Stock Exchange is open on Saturday, the weekend variance increases; weekly variance...
Capital Market Equilibrium with Transaction Costs
A two-asset, intertemporal portfolio selection model is formulated incorporating proportional transaction costs. The demand for assets is shown to be sensitive to these costs. H...
Publication Info
- Year
- 1973
- Type
- article
- Volume
- 81
- Issue
- 3
- Pages
- 607-636
- Citations
- 14769
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
14769
OpenAlex
Cite This
Eugene F. Fama,
James D. MacBeth
(1973).
Risk, Return, and Equilibrium: Empirical Tests.
Journal of Political Economy
, 81
(3)
, 607-636.
https://doi.org/10.1086/260061
Identifiers
- DOI
- 10.1086/260061