We test the Kraus-Litzenberger three-moment capital asset pricing model (CAPM) and the Fama-French (FF) three-factor (FF) model with the C-test proposed by Davidson and MacKinnon. We are unable to reject the null hypothesis that expected returns are described by either of the models in cross-sectional regressions. However, for size-sorted portfolios, both the FF three-factor and the three-moment CAPM significantly explain expected returns.
