Asset Pricing with Conditioning Information: A New Test

Abstract

This paper presents a new test of conditional versions of the Sharpe-Lintner CAPM, theJagannathan and Wang (1996)extension of the CAPM, and theFama and French (1993)three-factor model. The test is based on a general nonparametric methodology that avoids functional form misspecification of betas, risk premia, and the stochastic discount factor. Our results provide a novel view of empirical performance of these models. In particular, we find that a nonparametric version of the Fama and French model performs well, even when challenged by momentum portfolios.