EconPapers    
Economics at your fingertips  
 

Minimum-variance kernels, economic risk premia, and tests of multi-beta models

Pierluigi Balduzzi and Cesare Robotti ()

No 2001-24, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper uses minimum-variance (MV) admissible kernels to estimate risk premia associated with economic risk variables and to test multi-beta models. Estimating risk premia using MV kernels is appealing because it avoids the need to 1) identify all relevant sources of risk and 2) assume a linear factor model for asset returns. Testing multi-beta models in terms of restricted MV kernels has the advantage that 1) the candidate kernel has the smallest volatility and 2) test statistics are easy to interpret in terms of Sharpe ratios. The authors find that several economic variables command significant risk premia and that the signs of the premia mostly correspond to the effect that these variables have on the risk-return trade-off, consistent with the implications of the intertemporal capital asset pricing model (I-CAPM). They also find that the MV kernel implied by the I-CAPM, while formally rejected by the data, consistently outperforms a pricing kernel based on the size and book-to-market factors of Fama and French (1993).

Keywords: Risk; Asset pricing; Econometric models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-pke
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.frbatlanta.org//filelegacydocs/wp0124.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.frbatlanta.org//filelegacydocs/wp0124.pdf [301 Moved Permanently]--> https://www.frbatlanta.org/filelegacydocs/wp0124.pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:fip:fedawp:2001-24

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Elaine Clokey ().

 
Page updated 2019-07-11
Handle: RePEc:fip:fedawp:2001-24