Semiparametric Estimation of aCharacteristic-based Factor Model ofCommon Stock Returns

Gregory Connor and Oliver Linton

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: We introduce an alternative version of the Fama-French three-factor model of stockreturns together with a new estimation methodology. We assume that the factorbetas in the model are smooth nonlinear functions of observed securitycharacteristics. We develop an estimation procedure that combines nonparametrickernel methods for constructing mimicking portfolios with parametric nonlinearregression to estimate factor returns and factor betas simultaneously. Themethodology is applied to US common stocks and the empirical findings comparedto those of Fama and French.

Keywords: characteristic-based factor model; arbitrage pricing theory; kernelestimation; nonparametric estimation. (search for similar items in EconPapers)
JEL-codes: C14 G12 (search for similar items in EconPapers)
Date: 2006-09
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Related works:
Journal Article: Semiparametric estimation of a characteristic-based factor model of common stock returns (2007)
Working Paper: Semiparametric estimation of a characteristic-based factor model of common stock returns (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stiecm:506

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