|Title:||Estimating Beta pricing models with or without an Intercept : results from simulations|
|Authors :||Bänziger-Aiba, Armin|
|Published in :||International Research Journal of Finance and Economics|
|Publisher / Ed. Institution :||EuroJournals|
|License (according to publishing contract) :||Licence according to publishing contract|
|Type of review:||Peer review (Publication)|
|Subjects :||Simulation study; Two-pass approach; Asset pricing econometrics; Cross-section regression|
|Subject (DDC) :||330: Economics|
|Abstract:||The two-pass (cross-sectional) regression approach is widely used for estimating risk premia and testing factor pricing models. We investigate on two problems of the methodology, namely the error-in-variable bias and the large standard errors of the estimates. To mitigate these effects, we propose to run the first- and/or second-pass regression without an intercept(constant), hence imposing the theoretical restriction of the factor pricing model. We use simulations to assess the (finite sample) properties of estimators in the different regression specifications. Findings show that the error-in- variables bias and the standard errors of the estimates can be reduced considerably. Nevertheless, the standard errors remain substantial, even in large samples, so that statistical inference remains a challenging endeavour.|
|Departement:||School of Management and Law|
|Publication type:||Article in scientific Journal|
|Appears in Collections:||Publikationen School of Management and Law|
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