 Estimation with Errors in Variables via the Characteristic Function*H Malloch, R Philip and S Satchell Journal of Financial Econometrics, 2023, vol. 21, issue 3, 616-650 Abstract: Errors in variables in linear regression continue to be a significant empirical issue in financial econometrics. We propose using the characteristic function (CF) to obtain estimates for linear models with errors in the variables. By assuming that the explanatory variable follows a flexible double gamma distribution, we obtain closed-form expressions for the analytic CF of the data generating process. We show that our method performs well relative to existing techniques that address error-in-variables (EIVs) through simulations. We further extend our CF technique to a multivariate setting where it continues to produce accurate estimates. We illustrate the performance of our procedure by estimating the capital asset pricing model and a two-factor model. Keywords: beta; CAPM; characteristic function; error-in-variables (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jfinec:v:21:y:2023:i:3:p:616-650. Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Financial Econometrics is currently edited by Allan Timmermann and Fabio Trojani More articles in Journal of Financial Econometrics from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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