Table 3.21: Estimation results CAPM for best out-of-sample testing procedure. Coefficient estimates of the Sharpe-Lintner CAPM: rti-rtf=α + β (rtDJIA-rtf) + εt. That is, the return of the best recursive optimizing and testing procedure, when selection is done in the optimizing period by the mean return criterion (Panel A) or by the Sharpe ratio criterion (Panel B), in excess of the risk-free interest rate is regressed against a constant and the return of the DJIA in excess of the risk-free interest rate. Estimation results for the 0 and 0.10% costs per trade cases are shown. a, b, c indicates that the corresponding coefficient is, in the case of α, significantly different from zero, or in the case of β, significantly different from one, at the 1, 5, 10% significance level. Estimation is done with Newey-West (1987) heteroskedasticity and autocorrelation consistent (HAC) standard errors.

  Panel A   Panel B
selection criterion Mean return   Sharpe ratio
costs per trade 0% 0.10%   0% 0.10%
Data set α β α β   α β α β
DJIA 0.000311a 0.703a 0.000173 0.901   0.000292a 0.851 0.000165 0.832c
ALCOA 0.000955a 0.821c 0.000744a 0.800b   0.000859a 0.847 0.000568c 0.896
AMERICAN EXPRESS 0.000363 1.186 0.000372 1.217   0.000174 1.599a 0.000217 1.126
AT&T -9.59E-05 0.768b -0.000249 0.769a   -0.00017 0.838 -0.000295 0.712a
BETHLEHEM STEEL 0.000434 0.796b 0.000317 0.802c   0.00062 0.748a 0.000272 0.772b
BOEING 0.000299 0.862 0.000147 0.863   0.000399 0.901 0.000239 0.932
CATERPILLAR 0.000965a 0.811c 0.000704b 0.792c   0.000943a 0.805c 0.000753b 0.857
CHEVRON - TEXACO 0.000401 0.657a 0.000296 0.585a   0.000376 0.652a 0.000227 0.601a
CITIGROUP 0.000948c 1.614a 0.000874 1.637a   0.000930c 1.540a 0.000675 1.579a
COCA - COLA 0.000658b 0.816 0.000342 0.756b   0.000406 0.756b 0.000315 0.804
E.I. DU PONT DE NEMOURS 0.000281 0.875 9.73E-05 0.904   0.00029 0.905 7.14E-05 0.861
EASTMAN KODAK -6.32E-05 0.718a -0.000183 0.699a   -0.000252 0.694a -0.000246 0.692a
EXXON MOBIL 8.58E-05 1.037 8.49E-05 1.029   0.000113 0.731a 1.34E-05 0.737a
GENERAL ELECTRIC 0.000487b 0.957 0.00032 0.972   0.000276 1.018 0.000174 0.814
GENERAL MOTORS -6.13E-05 1.039 -0.000171 1.115b   1.68E-05 1.136a -6.19E-05 1.182a
GOODYEAR TIRE 0.0003 0.869 0.000152 0.844   0.000630b 0.695a 0.000414 0.701a
HEWLETT - PACKARD 0.000191 1.203 0.000131 1.179   0.000383 1.097 0.000315 1.097
HOME DEPOT 0.001074b 1.442a 0.000879b 1.202b   0.000792c 1.085 0.000788c 1.081
HONEYWELL INTL. 0.000681 1.011 0.0005 0.866   0.000516 1.203 0.000415 0.847
INTEL 0.000582 1.11 0.000609 1.003   0.000976b 1.016 0.001036b 0.986
INTL. BUS. MACH. -0.000115 0.776b -0.000266 0.763b   9.31E-06 0.859 -0.000109 0.825
INTERNATIONAL PAPER 0.000439 1.022 7.41E-05 1.174a   0.000252 1.198a 0.00015 1.230a
J.P. MORGAN CHASE & CO. 0.000774b 0.809c 0.000441 0.794c   0.000927a 0.754b 0.000507c 0.759b
JOHNSON & JOHNSON 0.00024 1.041 -4.52E-06 1.152c   0.000412c 0.819c 0.000248 0.756b
MCDONALDS 0.000325 0.795b 0.000239 0.637a   0.000372 0.757a 0.000235 0.629a
MERCK 0.000462c 0.827 0.000292 0.841   0.000388 0.963 0.000293 0.749b
MICROSOFT 0.000963c 1.065 0.000892 1.094   0.001068b 0.773b 0.000834c 0.872
141