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A Quantile-based Asset Pricing Model

Tomohiro Ando, 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

Abstract: 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
Date: 2019-07-13
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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