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Shrinkage Estimation of High-Dimensional Factor Models with Structural Instabilities

Cheng, Xu - 2014

In high-dimensional factor models, both the factor loadings and the number of factors may change over time. This paper proposes a shrinkage estimator that detects and disentangles these instabilities. The new method simultaneously and consistently estimates the number of pre- and post-break...

Persistent link: https://www.econbiz.de/10013061113

Digesting Anomalies : An Investment Approach

Hou, Kewei - 2012

Motivated from investment-based asset pricing, we propose a new factor model consisting of the market factor, a size factor, an investment factor, and a return on equity factor. The new factor model outperforms the Carhart four-factor model in pricing portfolios formed on earnings surprise,...

Persistent link: https://www.econbiz.de/10013099823

Identification and Inference in Linear Stochastic Discount Factor Models with Excess Returns

Burnside, A. Craig - 2010

When excess returns are used to estimate linear stochastic discount factor (SDF) models, researchers often adopt a normalization of the SDF that sets its mean to 1, or one that sets its intercept to 1. These normalizations are often treated as equivalent, but they are subtly different both in...

Persistent link: https://www.econbiz.de/10013134862

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

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

Aït-Sahalia, Yacine - 2010

Implicit in the prices of traded financial assets are Arrow- Debreu state prices or, in the continuous-state case, the state-price density (SPD). We construct an estimator for the SPD implicit in option prices and derive an asymptotic sampling theory for this estimator to gauge its accuracy. The...

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

Portfolio Inefficiency and the Cross-Section of Expected Returns

Kandel, Shmuel - 2011

A plot of expected returns versus betas obeys virtually no relation to an inefficient index portfolio's mean-variance location. If the index portfolio is inefficient, then the coefficients and R- squared from an ordinary-least-squares regression of expected returns on betas can equal essentially...

Persistent link: https://www.econbiz.de/10013118691

The Constrained Asset Share Estimation (Case) Method : Testing Mean-Variance Efficiency of the U.S. Stock Market

Engel, Charles - 2010

We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the …

Persistent link: https://www.econbiz.de/10012763456

Bayesian Inference and Portfolio Efficiency

Kandel (deceased), Shmuel - 2008

A Bayesian approach is used to investigate a sample's information about a portfolio's degree of inefficiency. With standard diffuse priors, posterior distributions for measures of portfolio inefficiency can concentrate well away from values consistent with efficiency, even when the portfolio is...

Persistent link: https://www.econbiz.de/10012774475

Estimating Bank Trading Risk : A Factor Model Approach

O'Brien, James M. - 2010

Risk in bank trading portfolios and its management are potentially important to the banks%u2019 soundness and to the functioning of securities and derivatives markets. In this paper, proprietary daily trading revenues of 6 large dealer banks are used to study the bank dealers%u2019 market risks...

Persistent link: https://www.econbiz.de/10012762299