Testing for Zero Intercept in Multivariate Normal Regression Using the Univariate Multiple-Regression F Test |
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Authors: | J. D. Jobson |
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Affiliation: | Department of Finance and Management Science , University of Alberta , Edmonton , Alberta , Canada , T6G 2G1 |
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Abstract: | A likelihood ratio test is derived for comparing the performance potential of a subset of a population of financial assets to the performance potential of the entire population. The test is shown to be equivalent to a test for zero intercept in a multivariate normal regression model. Rao's F approximation to Wilks' Lamda is shown to be equivalent in this case to the conventional F test used to test the significance of a subset of regressors in a univariate multiple-regression model. The test is illustrated using a sample of returns from ten stocks from the New York Stock Exchange. |
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Keywords: | Financial portfolio performance Market efficiency Likelihood ratio test Rao's F approximation to Wilks' Lambda |
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