Estimating and testing beta pricing models: Alternative methods and their performance in simulations

Estimating and testing beta pricing models: Alternative methods and their performance in simulations We conduct a simulation analysis of the Fama and MacBeth(1973. Risk, returns and equilibrium: empirical tests. Journal of Political Economy 71, 607–636.) two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return models. We also provide some new analytical results on computational issues, the relations between estimators, and asymptotic distributions under model misspecification. The generalized least squares estimator is often much more precise than the usual ordinary least squares (OLS) estimator, but it displays more bias as well. A “truncated” form of ML performs quite well overall in terms of bias and precision, but produces less reliable inferences than the OLS estimator. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Estimating and testing beta pricing models: Alternative methods and their performance in simulations

Journal of Financial Economics, Volume 84 (1) – Apr 1, 2007

Loading next page...
 
/lp/elsevier/estimating-and-testing-beta-pricing-models-alternative-methods-and-Q37QzD0RHE
Publisher
Elsevier
Copyright
Copyright © 2006 Elsevier B.V.
ISSN
0304-405x
DOI
10.1016/j.jfineco.2006.02.003
Publisher site
See Article on Publisher Site

Abstract

We conduct a simulation analysis of the Fama and MacBeth(1973. Risk, returns and equilibrium: empirical tests. Journal of Political Economy 71, 607–636.) two-pass procedure, as well as maximum likelihood (ML) and generalized method of moments estimators of cross-sectional expected return models. We also provide some new analytical results on computational issues, the relations between estimators, and asymptotic distributions under model misspecification. The generalized least squares estimator is often much more precise than the usual ordinary least squares (OLS) estimator, but it displays more bias as well. A “truncated” form of ML performs quite well overall in terms of bias and precision, but produces less reliable inferences than the OLS estimator.

Journal

Journal of Financial EconomicsElsevier

Published: Apr 1, 2007

References

  • Multivariate analysis
    Bartlett, M.S.
  • Asset Pricing
    Cochrane, J.H.
  • Institutional holdings and payout policy
    Grinstein, Y.; Michaely, R.
  • Large sample properties of the generalized method of moments estimators
    Hansen, L.P.
  • Portfolio inefficiency and the cross-section of expected returns
    Kandel, S.; Stambaugh, R.
  • Using generalized method of moments to test mean-variance efficiency
    MacKinlay, A.C.; Richardson, M.P.
  • Testing portfolio efficiency when the zero-beta rate is unknown: a note
    Shanken, J.
  • On the estimation of beta-pricing models
    Shanken, J.
  • Capital asset prices: a theory of market equilibrium under conditions of risk
    Sharpe, W.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off