Capital asset pricing models revisited: Evidence from errors in variables

This paper revisits an instrumental variable technique to minimize the errors-in-variables problem in capital asset pricing models. Our results show that Dagenais and Dagenais [Dagenais, M.G., Dagenais, D.L., 1997. Higher moment estimators for linear regression models with errors in the variables. Journal of Econometrics 76, 193–221] estimator, based on higher moments, is well suited to correct for the bias induced by measurement errors in both the CAPM and the three-factor model of Fama and French [Fama, E.F., French, K.R., 1997. Industry costs of equity. Journal of Financial Economics 43, 153-193].