An analysis of nonlinearities, heteroscedasticity, and functional form in the market model

Bill McDonald; Cheng Few Lee

doi:10.1080/07350015.1988.10509699

An analysis of nonlinearities, heteroscedasticity, and functional form in the market model

Bill McDonald, Cheng Few Lee

Rutgers Business School, Finance & Economics

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

Using a generalized specification of the single-index market model, this study examines the sources of statistical anomalies previously found in estimating the market model. Two generalized models are developed for juxtaposition with the traditional linear specification. The most general model is a Box-Cox model with different as and heteroscedastic errors. The empirical results indicate that previous findings of significant “nonlinearities” are primarily attributable to nonnormalities and unequal variance.

Original language	English (US)
Pages (from-to)	505-509
Number of pages	5
Journal	Journal of Business and Economic Statistics
Volume	6
Issue number	4
DOIs	https://doi.org/10.1080/07350015.1988.10509699
State	Published - Oct 1988

All Science Journal Classification (ASJC) codes

Statistics and Probability
Social Sciences (miscellaneous)
Economics and Econometrics
Statistics, Probability and Uncertainty

Keywords

Asset pricing
Box-Cox model
Nonnormalities

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10.1080/07350015.1988.10509699

Cite this

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An analysis of nonlinearities, heteroscedasticity, and functional form in the market model

Abstract

All Science Journal Classification (ASJC) codes

Keywords

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