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Factors that Fit the Time Series and Cross-Section of Stock Returns

Lettau, Martin - 2018

We propose a new method for estimating latent asset pricing factors that fit the time-series and cross-section of expected returns. Our estimator generalizes Principal Component Analysis (PCA) by including a penalty on the pricing error in expected returns. We show that our estimator strongly...

Persistent link: https://www.econbiz.de/10012913794

Pricing Model Performance and the Two-Pass Cross-Sectional Regression Methodology

Kan, Raymond - 2010

Since Black, Jensen, and Scholes (1972) and Fama and MacBeth (1973), the two-pass cross-sectional regression (CSR) methodology has become the most popular approach for estimating and testing asset pricing models. Statistical inference with this method is typically conducted under the assumption...

Persistent link: https://www.econbiz.de/10013152564

Maximum Likelihood Estimation of the Equity Premium

Avdis, Efstathios - 2013

The equity premium, namely the expected return on the aggregate stock market less the government bill rate, is of central importance to the portfolio allocation of individuals, to the investment decisions of firms, and to model calibration and testing. This quantity is usually estimated from the...

Persistent link: https://www.econbiz.de/10013072344

Conditioning Information and Variance Bounds on Pricing Kernels

Bekaert, Geert - 2000

We show how to use conditioning information optimally to construct a sharper unconditional Hansen-Jagannathan (1991) bound. The approach in this paper is different from that of Gallant, Hansen and Tauchen (1990), but both approaches yield the same bound when the conditional moments are known....

Persistent link: https://www.econbiz.de/10012788973

Asset Pricing with a Factor Arch Covariance Structure : Empirical Estimates for Treasury Bills

Engle, Robert F. - 2010

Theory suggest the same testable implication: the time varying part of risk premia are proportional to the time varying …

Persistent link: https://www.econbiz.de/10012762596

Conditioning Variables and the Cross-Section of Stock Returns

Ferson, Wayne E. - 2010

Previous studies have identified predetermined variables that have some power to explain the time series of stock and bond returns. This paper shows that loadings on the same variables also provide significant cross-sectional explanatory power for stock portfolio returns. These loadings are...

Persistent link: https://www.econbiz.de/10012763320

Costs of Equity Capital and Model Mispricing

Pástor, Ľuboš - 2010

Costs of equity for individual firms are estimated in a Bayesian framework using several factor-based pricing models. Substantial prior uncertainty about mispricing often produces an estimated cost of equity close to that obtained with mispricing precluded, even for a stock whose average return...

Persistent link: https://www.econbiz.de/10012763608

Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices

Aït-Sahalia, Yacine - 2010

theory for this estimator to gauge its accuracy. The SPD estimator provides an arbitrage-free method of pricing new, more …

Persistent link: https://www.econbiz.de/10012763707

Tests of International CAPM with Time-Varying Covariances

Engel, Charles - 2008

We perform maximum likelihood estimation of a model of international asset pricing based on CAPM. We test the … restrictions imposed by CAPM against a more general asset pricing model. The quot;betasquot; in our CAPM vary over time from two … estimate. We find that the model in which the CAPM restrictions are imposed (which involve cross-equation constraints between …

Persistent link: https://www.econbiz.de/10012774612

Econometric Evaluation of Asset Pricing Models

Hansen, Lars Peter - 2008

In this paper we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency and derive the limiting distribution of these estimators. The...

Persistent link: https://www.econbiz.de/10012775004