Robust Estimation and Forecasting of the Capital Asset Pricing Model

Guorui Bian, Michael McAleer and Wing-Keung Wong

Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper, we develop a modified maximum likelihood (MML) estimator for the multiple linear regression model with underlying student t distribution. We obtain the closed form of the estimators, derive the asymptotic properties, and demonstrate that the MML estimator is more appropriate for estimating the parameters of the Capital Asset Pricing Model by comparing its performance with least squares estimators (LSE) on the monthly returns of US portfolios. The empirical results reveal that the MML estimators are more efficient than LSE in terms of the relative efficiency of one-step-ahead forecast mean square error in small samples.

Keywords: Robustness; capital asset pricing model; maximum likelihood estimators; modified maximum likelihood estimators; student t family (search for similar items in EconPapers)
JEL-codes: C1 C2 G1 (search for similar items in EconPapers)
Date: 2010-12-07
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https://repub.eur.nl/pub/21722/EI2010-65.pdf (application/pdf)

Related works:
Journal Article: ROBUST ESTIMATION AND FORECASTING OF THE CAPITAL ASSET PRICING MODEL (2013)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2013)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2012)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:21722

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