We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroskedasticity, or when cross-sectional sample sizes, n, are below 4,000 assets. Estimators...

Abstract We propose estimators of the stochastic discount factor (SDF) using large cross-sections of individual stocks. Our small-sample bias corrections allow us to exploit unbalanced panels of individual stock returns. Our estimators can accommodate prespecified traded and non-traded factors,...

This paper develops a new estimation procedure for characteristic-based factor models of security returns. We treat the factor model as a weighted additive nonparametric regression model, with the factor returns serving as time-varying weights, and a set of univariate nonparametric functions...