STAT244.Lecture.04 6

STAT244.Lecture.04 6 - 2 . I Easy to use; add other factors...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Cross-Sectional Regression: I Do markert betas completely explain the expected returns? I At ‘t’, Z t = γ 0 t 1 + γ 1 t β m + η t , ˆ γ 0 t , ˆ γ 1 t . Let γ 0 = E ( γ 0 t ), γ 1 = E ( γ 1 t ); by Sharpe-Lintner CAPM, γ 0 = 0; γ 1 > 0; test these via, w γ j ) = ˆ γ j ˆ σ γ j t ( T - 1). Here ˆ γ j = 1 T T j =1 ˆ γ jt , ˆ σ 2 γ j = 1 T ( T - 1) T t =1 γ jt ˆ γ j )
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2 . I Easy to use; add other factors to the basic model and check if they are signicant. I Some issues: need to estimate m in the rst place; Introduce errors in variables....
View Full Document

Ask a homework question - tutors are online