We consider the estimation methods for the rank of a beta matrix corresponding to a multifactor model and study which method would be appropriate for data with a large number of assets. Our simulation results indicate that a restricted version of Cragg and Donald's (1997) Bayesian Information...

We study the dynamic impact of idiosyncratic volatility and bond liquidity on corporate bond spreads over time and empirically disentangle both effects. Using an extensive data set, we find that both idiosyncratic volatility and liquidity are critical mainly for the distress portfolios, i.e.,...

This paper analyzes the finite-sample performance of the two-pass (TP) estimators of factor risk prices when betas have high cross-sectional correlations (Multicollinear) and when betas have small cross-sectional variations (Invariant). Our Monte Carlo simulations, calibrated using actual...

This paper investigates the reliability of the two-pass (TP) estimators of factor risk prices when betas (multifactor loadings) have high levels of cross-sectional correlation (multicollinearity) and/or when some of them have small cross-sectional variations (near-invariance). Our simulation...