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theory's tests
Part I: On past and potential
testability of the theory
By Richard Roll
1
The Results
• “The two-parameter asset pricing theory is
testable in principle; but arguments are given
here that: (a) No correct and unambiguous
test of the theory has appeared in the
literature, and (b) there is practically no
possibility that such a test can be
accomplished in the future.”
• Main takeaways: Logic, math, empirical
design, and inference
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