Factor models with many assets: strong factors, weak factors, and the two-pass procedure

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F22%3A00568748" target="_blank" >RIV/67985998:_____/22:00568748 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/00216208:11640/22:00557297

Výsledek na webu

<a href="https://doi.org/10.1016/j.jeconom.2021.01.002" target="_blank" >https://doi.org/10.1016/j.jeconom.2021.01.002</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.jeconom.2021.01.002" target="_blank" >10.1016/j.jeconom.2021.01.002</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Factor models with many assets: strong factors, weak factors, and the two-pass procedure

Popis výsledku v původním jazyce

This paper re-examines the problem of estimating risk premia in unconditional linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in the errors, and (moderately) high cross-sectional dimensionality. Using an asymptotic framework where the number of assets/portfolios grows with the time span of the data while the risk exposures of weak factors are local-to-zero, we show that the conventional two-pass estimation procedure delivers inconsistent estimates of the risk premia. We propose a new estimation procedure based on sample-splitting instrumental variables regression. The proposed estimator of risk premia is robust to weak included factors and to the presence of strong unaccounted cross-sectional error dependence. We prove the consistency of the new estimator, establish asymptotically valid inferences using Wald statistics, verify performance of the new procedure in simulations, and revisit some empirical studies.

Název v anglickém jazyce

Factor models with many assets: strong factors, weak factors, and the two-pass procedure

Popis výsledku anglicky

This paper re-examines the problem of estimating risk premia in unconditional linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in the errors, and (moderately) high cross-sectional dimensionality. Using an asymptotic framework where the number of assets/portfolios grows with the time span of the data while the risk exposures of weak factors are local-to-zero, we show that the conventional two-pass estimation procedure delivers inconsistent estimates of the risk premia. We propose a new estimation procedure based on sample-splitting instrumental variables regression. The proposed estimator of risk premia is robust to weak included factors and to the presence of strong unaccounted cross-sectional error dependence. We prove the consistency of the new estimator, establish asymptotically valid inferences using Wald statistics, verify performance of the new procedure in simulations, and revisit some empirical studies.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50202 - Applied Economics, Econometrics

Projekt

Výsledek vznikl pri realizaci vícero projektů. Více informací v záložce Projekty.

Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2022

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Journal of Econometrics

ISSN

0304-4076

e-ISSN

1872-6895

Svazek periodika

229

Číslo periodika v rámci svazku

1

Stát vydavatele periodika

CH - Švýcarská konfederace

Počet stran výsledku

24

Strana od-do

103-126

Kód UT WoS článku

000803809300005

EID výsledku v databázi Scopus

2-s2.0-85100646014