Abstract
I derive the beta-pricing representation of Harvey and Siddique (2000) conditional 3M-CAPM and estimate it using returns on the Fama and French (1995) 30 US industry portfolios from 1952 to 2002 and Lettau and Ludvigson (2001) consumption-wealth ratio as a conditioning variable. The parameter estimates imply an inverse S-shaped utility function and the gamma premium turns out to be insignificant when risk aversion and non-increasing absolute risk aversion are imposed. However, if we accept some risk seeking over gains, my 3-moment beta pricing representation is surprisingly successful at explaining the cross-section of average industry returns.
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