TESTS OF CONDITIONAL ASSET PRICING WITH TIME-VARYING MOMENTS AND RICKPRICES

This paper tests conditional capital asset pricing models in a multiva riate GARCH framework employing both constant and time-varying prices of market and bond risk. Depending on the interpretation of the market portfolio, the ICAPM with one hedge portfolio or the two-factor myopi c CAPM are supported using weekly data from July 1983 to December 1989 . In contrast, we reject the myopic single-factor CAPM under a constan t price of market risk. We find that interest rate risk is highly sign ificant, which suggests that previous rejections of the conditional CA PM using only stock market data may be due to omitted hedge terms or a n incomplete market factor.