Publisher's Synopsis
Excerpt from Capital Asset Pricing Model Tests in a Term Structure Context
The stochastic beta model under the second interpretation of (1) includes the stable beta as a special case; i.e., it nests the stable beta model. Additionally, it will be shown that the stable beta model (1) nests the traditional capm. The rationale for nesting models in this manner is that it takes a model to beat a model, so that tests are best structured to focus on the incremental explanatory power of the increasingly more elaborate models. Indeed, outside this nested hypothesis framework, it is not clear what it even means to reject (say) the traditional capm against a general unspecified alternative.
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