Economics at your fingertips  

A Combined Approach to the Inference of Conditional Factor Models

Yan Li, Liangjun Su and Yuewu Xu

Journal of Business & Economic Statistics, 2015, vol. 33, issue 2, 203-220

Abstract: This article develops a new methodology for estimating and testing conditional factor models in finance. We propose a two-stage procedure that naturally unifies the two existing approaches in the finance literature--the parametric approach and the nonparametric approach. Our combined approach possesses important advantages over both methods. Using our two-stage combined estimator, we derive new test statistics for investigating key hypotheses in the context of conditional factor models. Our tests can be performed on a single asset or jointly across multiple assets. We further propose a novel test to directly check whether the parametric model used in our first stage is correctly specified. Simulations indicate that our estimates and tests perform well in finite samples. In our empirical analysis, we use our new method to examine the performance of the conditional capital asset pricing model (CAPM), which has generated controversial results in the recent asset-pricing literature.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: A Combined Approach to the Inference of Conditional Factor Models (2014) Downloads
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:

Ordering information: This journal article can be ordered from

DOI: 10.1080/07350015.2014.940082

Access Statistics for this article

Journal of Business & Economic Statistics is currently edited by Eric Sampson, Rong Chen and Shakeeb Khan

More articles in Journal of Business & Economic Statistics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2020-06-25
Handle: RePEc:taf:jnlbes:v:33:y:2015:i:2:p:203-220