Theoretical development of asset pricing models and their empirical results: A critical examination of factor based models in the context of meta analysis approach

The power of any models either theoretical model or econometrical model comes from its prediction accuracy. A theoretical model such as Sharpe-Lintner Capital Asset Pricing Model (CAPM) is constructed on a set of assumptions whether these are consistent with the realism or not, and the predictions made in the context of these assumptions. Deriving mathematically the equilibrium representation of the models is carried out through manipulating these assumptions. The purposes of the study are (i) to give an extensive review on theoretical development of asset pricing models by emphasizing the main themes of asset pricing, Markowitz Mean-Variance Algorithm and S-L CAPM in the line with giving rather simple explanations about the static and dynamic models (ii) to present empirical investigations of the models through a systematic based selection criterion so called Meta Analysis and (iii) to investigate Sharpe-Lintner CAPM on manufacturing industry empirically . Results coming out from empirical investigation of S-L CAPM do confirm that there is a linear relationship between risk and return whereas the parameter tests are not satisfactory to conclude that the model parameters are robust. This is mainly due to the weakness of econometric specification for the Model. Therefore, based on the results reported here, one may not reject the model; instead one may reject the proxy inefficiency for market portfolio.