Identification-robust and simultaneous inference in multifactor asset pricing models

Marie-Claude Beaulieu, Jean-Marie Dufour and Lynda Khalaf

Journal of Econometrics, 2025, vol. 248, issue C

Abstract: This paper proposes exact identification-robust confidence sets for the zero-beta rate and ex-post factor prices in asset pricing models. Exploiting the information from the cross-sectional intercept allows us to impose or formally test model-consistent restrictions, including those resulting from traded factors in excess of the zero beta-rate or from return spreads. Analytical projection-based solutions for confidence set outcomes are developed. The proposed procedures are extended to the case of missing factors. Empirical and simulation results with traded and non-traded factors show that model-consistent restrictions and elusive factors can materially affect model fit, identification, inference and temporal constancy of pricing influence.

Keywords: Linear asset pricing; Traded and non-traded factors; Weak identification; Identification-robust inference; Multivariate linear regression; Exact test (search for similar items in EconPapers)
JEL-codes: C3 C58 G11 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:248:y:2025:i:c:s0304407624002665

DOI: 10.1016/j.jeconom.2024.105915

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