A Quantile-based Asset Pricing Model
Jushan Bai (),
Mitohide Nishimura () and
Jun Yu ()
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Mitohide Nishimura: Nikko Asset Management Co. Ltd
No 15-2019, Economics and Statistics Working Papers from Singapore Management University, School of Economics
It is well-known that the standard estimators of the risk premium in asset pricing models are biased when some price factors are omitted. To address this problem, we propose a novel quantile-based asset pricing model and a new estimation method. Our new asset pricing model allows for the risk premium to be quantile-dependent and our estimation method is applicable to models with unobserved factors. It avoids biased estimation results and always ensures a positive risk premium. The method is applied to the U.S., Japan, and U.K. stock markets. The empirical analysis demonstrates the clear beneﬁts of our approach.
Keywords: Five-factor model; Quantile-based asset pricing model; Risk premium (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 52 pages
New Economics Papers: this item is included in nep-ecm, nep-fmk, nep-ore, nep-rmg and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ris:smuesw:2019_015
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