ROBUST ESTIMATION AND FORECASTING OF THE CAPITAL ASSET PRICING MODEL

Guorui Bian, Michael McAleer and Wing-Keung Wong
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Guorui Bian: Department of Statistics, East China Normal University, China

Annals of Financial Economics (AFE), 2013, vol. 08, issue 02, 1-18

Abstract: In this paper, we develop a modified maximum likelihood (MML) estimator for the multiple linear regression model with underlying student t distribution. We obtain the closed form of the estimators, derive the asymptotic properties, and demonstrate that the MML estimator is more appropriate for estimating the parameters of the Capital Asset Pricing Model (CAPM) by comparing its performance with least squares estimators (LSE) on the monthly returns of US portfolios. The empirical results reveal that the MML estimators are more efficient than LSE in terms of the relative efficiency of one-step-ahead forecast mean square error in small samples.

Keywords: Maximum likelihood estimators; modified maximum likelihood estimators; student t family; capital asset pricing model; robustness; JEL Classification: C1; JEL Classification: C2; JEL Classification: G1 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2013)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2012)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:afexxx:v:08:y:2013:i:02:n:s2010495213500073

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DOI: 10.1142/S2010495213500073

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