The existence theorem of approximate multibeta representation for multifactor pricing models with unobservable omitted variables: A technical note

Jau-Lian Jeng

Global Finance Journal, 2008, vol. 19, issue 1, 11-18

Abstract: This paper extends the approximate multibeta representation of Reisman [Reisman, H. (1988), A general approach to the APT, Econometrica, 56, 473-476, Reisman, H. (1992), Reference variables, factor structure, and the approximate multibeta representation, Journal of Finance, 47(4), 1303-1314] with insufficient information. An existence theorem is presented that if the projection error (when regressing the excess returns on a presumed information set of reference variables with linearity) follows the dependence conditions of a mixing random field, there exists an approximate multibeta representation for the risk premium. This result holds even though the linearity is an incorrect specification and/or that the included variables are not sufficiently informative for the model. In particular, the theorem includes omitted (dynamic) factor(s) which may cause unknown inter-temporal or cross-sectional memory in projection errors. An alternative model selection approach is suggested for the specification of risk premium in empirical finance.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044-0283(08)00015-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:19:y:2008:i:1:p:11-18

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().