Using Pitman Closeness to Compare Stock Return Models
Victoria Javine, Gwendolyn Pennywell, Alan Chow

Abstract
This paper provides an alternate method of evaluating portfolio performance of stock pricing models. We apply Pitman Closeness Criterion to compare the accuracy of three popular pricing models. This comparison is used to assess which, if any, model outperforms the others. In assessing model performance over a long period of time, we find that the Fama-French three-factor model and the Carhart four-factor model each show better performance in prediction of stock returns than CAPM. When we limit the study to more recent data, the Carhart model shows better performance for more portfolios than the Fama-French and the CAPM models.

Full Text: PDF