Robust Estimation of Multiple Regression Model with asymmetric innovations and Its Applicability on Asset Pricing Model

Wing-Keung Wong () and Guorui Bian
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Guorui Bian: East China Normal University, China

Departmental Working Papers from National University of Singapore, Department of Economics

Abstract: In this paper, we first develop the modified maximum likelihood (MML) estimators for the multiple regression coefficients in linear model with the underlying distribution assumed to be symmetric, one of Student's t family. We obtain the closed form of the estimators and derive their asymptotic properties. In addition, we demonstrate that the MML estimators are more appropriate to estimate the parameters in the Capital Asset Pricing Model by comparing its performance with that of least squares estimators (LSE) on the monthly returns of US portfolios. Our empirical study reveals that the MML estimators are more efficient than the LSE in terms of relative efficiency of one-step-ahead forecast mean square error for small samples.

Keywords: Maximum likelihood estimators; Modified maximum likelihood estimators; Student’s t family; Capital Asset Pricing Model; Robustness (search for similar items in EconPapers)
JEL-codes: C1 C2 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-fin
Date: 2005-05
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Persistent link: http://EconPapers.repec.org/RePEc:nus:nusewp:wp0508

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