The structural Sharpe model under t-distributions

Manuel Galea, David Cademartori and Filidor Vilca

Journal of Applied Statistics, 2010, vol. 37, issue 12, 1979-1990

Abstract: In this paper we consider Sharpe's single-index model or Sharpe's model, by assuming that the returns obtained follow a multivariate t elliptical distribution. Also, given that the returns of the market are not observable, the statistical analysis was made in the context of an errors-in-variables model. In order to analyze the sensibility to possible outliers and/or atypical returns of the maximum likelihood estimators the local influence method [10] was implemented. The results are illustrated by using a set of shares of companies belonging to the Chilean Stock Market. The main conclusion is that the t model with small degrees of freedom is able to incorporate possible outliers and influential returns in the data.

Keywords: diagnostics; t-distribution; errors-in-variables models; portfolios; Sharpe model (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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DOI: 10.1080/02664760903207316

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