Estimating the Risk-Return Trade-off with Overlapping Data Inference

Esben Hedegaard and Robert Hodrick ()

No 19969, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Asset pricing models such as the conditional CAPM are typically estimated with MLE using a monthly or quarterly horizon with data sampled to match the horizon even though daily data are available. We develop an overlapping data inference methodology (ODIN) that uses all of the data while maintaining the monthly or quarterly forecasting period, and we apply it to the conditional CAPM. Our approach recognizes that the first order conditions of MLE can be used as orthogonality conditions of GMM. Using historical data, we find considerable differences in the estimates from the non-overlapping samples that begin on different days.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-fmk
Note: AP
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Published as Esben Hedegaard & Robert J. Hodrick, 2016. "Estimating the risk-return trade-off with overlapping data inference," Journal of Banking & Finance, vol 67, pages 135-145.

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Journal Article: Estimating the risk-return trade-off with overlapping data inference (2016)
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