The Library
Misspecification-robust inference in linear asset pricing models with irrelevant risk factors
Tools
Tools
Tools
Gospodinov, Nikolay, Kan, Raymond and Robotti, Cesare (2014) Misspecification-robust inference in linear asset pricing models with irrelevant risk factors. Review of Financial Studies, 27 (7). pp. 2139-2170. doi:10.1093/rfs/hht135
![[img]](http://wrap.warwick.ac.uk/style/images/fileicons/application_pdf.png) |
PDF
WRAP-misspecification-robust-inference-linear-asset-pricing-models-Robotti-2014.pdf - Accepted Version Embargoed item. Restricted access to Repository staff only - Requires a PDF viewer. Download (645Kb) |
Official URL: https://doi.org/10.1093/rfs/hht135
Abstract
This paper shows that in misspecified models with risk factors that are uncorrelated with the test asset returns, the conventional inference methods tend to erroneously conclude, with high probability, that these factors are priced. Our proposed model selection procedure, which is robust to identification failure and potential model misspecification, restores the standard inference and proves to be effective in eliminating factors that do not improve the model's pricing ability. Applying our methodology to several popular asset-pricing models suggests that only the market and book-to-market factors appear to be priced, while the statistical evidence on the pricing ability of many macroeconomic factors is rather weak.
| Item Type: | Journal Article | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance | |||||||||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
|||||||||||||||
| Library of Congress Subject Headings (LCSH): | Capital assets pricing model, Inference, Probabilities, Linear models (Statistics) | |||||||||||||||
| Journal or Publication Title: | Review of Financial Studies | |||||||||||||||
| Publisher: | Oxford University Press | |||||||||||||||
| ISSN: | 0893-9454 | |||||||||||||||
| Official Date: | 1 July 2014 | |||||||||||||||
| Dates: |
|
|||||||||||||||
| Volume: | 27 | |||||||||||||||
| Number: | 7 | |||||||||||||||
| Page Range: | pp. 2139-2170 | |||||||||||||||
| DOI: | 10.1093/rfs/hht135 | |||||||||||||||
| Status: | Peer Reviewed | |||||||||||||||
| Publication Status: | Published | |||||||||||||||
| Access rights to Published version: | Restricted or Subscription Access | |||||||||||||||
| RIOXX Funder/Project Grant: |
|
Request changes or add full text files to a record
Repository staff actions (login required)
 |
View Item |
