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Comment: A Test of Stone's Two-Index Model of Returns

Published online by Cambridge University Press:  06 April 2009

Don M. Chance
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Extract

In a recent article Lloyd and Shick [3] examined a two-index model of bank stock returns with interest rates as the extra-market source of covariance. Based on their findings, the authors were optimistic that the inclusion of an interest rate index would prove to be worthwhile in market model regressions. The purpose of this comment is to question their conclusions by pointing out some specific deficiencies concerning their data, the statistical tests, and their interpretation of the results.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 3 , September 1979 , pp. 641 - 644
Copyright
Copyright © School of Business Administration, University of Washington 1979

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References

REFERENCES

[1]Blume, M. “On the Assessment of Risk.” Journal of Finance (03 1971), pp. 1–10.CrossRefGoogle Scholar
[2]Fama, E. F.Foundations of Finance. New York: Basic Books, Inc. (1976).Google Scholar
[3]Lloyd, W. P., and Shick, R. A.. “A Test of Stone's Two-Index Model of Returns.” Journal of Financial and Quantitative Analysis (09 1977), pp. 363–376.Google Scholar
[4]Rosenberg, B., and Guy, J.. “Prediction of Beta from Investment Fundamentals.” Financial Analysts Journal (07–08 1974), pp. 62–70.Google Scholar
[5]Stone, B. K. “Systematic Interest Rate Risk in a Two-Index Model of Returns.” Journal of Financial and Quantitative Analysis (11 1974), pp. 709–721.CrossRefGoogle Scholar