We discuss the finding that cross-sectional characteristic based models have
yielded portfolios with higher excess monthly returns but lower risk than their
arbitrage pricing theory counterparts in an analysis of equity returns of
stocks listed on the JSE. Under the assumption of general no-arbitrage
conditions, we argue that evidence in favour of characteristic based pricing
implies that information is more likely assimilated by means of nonlinear
pricing kernels for the markets considered.Comment: 20 pages, 3 figures, 1 tabl
