An asymptotic theory for estimating beta-pricing models using cross-sectional regression

Article Abstract:

Without the assumption of conditional homoskedasticity, a general asymptotic distribution theory for the two-stage cross-sectional regression method shows that the standard errors produced by the Fama-MacBeth procedure do not necessarily overstate the precision of the risk premium estimates. When factors are misspecified, estimators for risk premiums can be biased, and the t-value of a premium may converge to infinity in probability even when the true premium is zero. However, when a beta-pricing model is misspecified, the t-values for firm characteristics generally converge to infinity in probability, which supports the use of firm characteristics in cross-sectional regressions for detecting model misspecification. (Reprinted by permission of the publisher.)

Models, Usage, Risk assessment, Pricing, Regression analysis, Asymptotic efficiencies (Statistics)

---

The conditional CAPM and the cross-section of expected returns

Article Abstract:

Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross-section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross-section of average returns. (Reprinted by permission of the publisher.)

Capital assets pricing model, Capital asset pricing model

---

Economic significance of predictable variations in stock index returns

Article Abstract:

Knowledge of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2% of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60% of the variance of the returns on the value weighted index, whereas the average return was two basis points higher. (Reprinted by permission of the publisher.)

Evaluation, Portfolio management

Similar abstracts:

• Abstracts: Gene editing in human stem cells using zinc finger nucleases and integrase-defective lentiviral vector delivery
• Abstracts: A time for cool heads and wise reflection. Of tax rules and their consequences. When right ends and duty begins
• Abstracts: Mean reversion in stock prices: tests using duration models. The empirical characterization of financial markets in developing countries
• Abstracts: A quick trip, or in for the long haul? Ticket to ride, price unknown
• Abstracts: Penny share warning. London stock market: dealing costs to fall. New issues: last orders

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.