Lewellen, Jonathan. <br/><br/>
A Skeptical Appraisal of Asset-Pricing Tests / 
Jonathan Lewellen, Stefan Nagel, Jay Shanken. 
 - Cambridge, Mass.  National Bureau of Economic Research  2006. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w12360 .
 - Working Paper Series (National Bureau of Economic Research)  no. w12360. .
<br/><br/> July 2006. 
<br/><br/> It has become standard practice in the cross-sectional asset-pricing literature to evaluate models based on how well they explain average returns on size- and B/M-sorted portfolios, something many models seem to do remarkably well. In this paper, we review and critique the empirical methods used in the literature. We argue that asset-pricing tests are often highly misleading, in the sense that apparently strong explanatory power (high cross-sectional R2s and small pricing errors) in fact provides quite weak support for a model. We offer a number of suggestions for improving empirical tests and evidence that several proposed models don't work as well as originally advertised. 
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