Abstract:
Abstract:This paper provides a stringent proof for the general test of latent variable model with time-varying risk premium developed by Fersen and Foerster （1993） and conducts a test by selecting ＂the size portfolio＂ as sample in Chinese stock market. The Bleck-Bootstrap method is also adopted to study the finite sample properties of GMM. The result reveals that the Bleck-Bootstrap simulation of GMM is robust and P-value based on asymptotic distribution tends to be underestimated. The empirical result shows that the China＇ s steck market can not reject the ＂ 1 latent variable model＂. The conclusion of this paper manifests the essence of risk and return in the China＇ s steck market and has great significance to the policy-making