Abstract

This article presents a mean-variance framework for likelihood-ratio tests of asset pricing models. A pricing model is tested by examining the position of one or more reference portfolios in sample meanstandard-deviation space. Included are tests of both single-beta and multiple-beta relations, with or without a riskless asset, using either a general or a specific alternative hypothesis. Tests with a factor that is not a portfolio return are also included. The meanvariance framework is illustrated by testing the zerobeta CAPM, a two-beta pricing model, and the consumption-beta model. Many asset pricing models imply a linear relation between the expected return on an asset and covariances between the asset's return and one or more factors. The implications of such models can also be stated in terms of the mean-variance efficiency of a benchmark portfolio. In single-beta pricing relations, the benchmark portfolio can be identified specifically. For exam

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