Fama–MacBeth two-pass regressions: Improving risk premia estimates

Jushan Bai and Guofu Zhou

Finance Research Letters, 2015, vol. 15, issue C, 31-40

Abstract: In this paper, we provide the asymptotic theory for the widely used Fama and MacBeth (1973) two-pass risk premia estimates in the usual case of a large number of assets. We demonstrate analytically and using simulations that the standard OLS and GLS estimators can contain large bias when the time series sample size is small, but our proposed OLS and GLS estimators can reduce the bias significantly.

Keywords: Cross-section; Fama–MacBeth; Risk premia; Asset pricing models (search for similar items in EconPapers)
JEL-codes: C11 C21 G11 G12 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:15:y:2015:i:c:p:31-40

DOI: 10.1016/j.frl.2015.08.001

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