Robust Estimation and Forecasting of the Capital Asset Pricing Model

Guorui Bian, Michael McAleer and Wing-Keung Wong
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Guorui Bian: Department of Statistics East China Normal University.

No 2012-09, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

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: Maximum likelihood estimators; Modified maximum likelihood estimators; Student t family; Capital asset pricing model; Robustness. (search for similar items in EconPapers)
JEL-codes: C1 C2 G1 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2012, Revised 2012-04
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Note: The third author would like to thank Robert B. Miller and Howard E. Thompson for their continuous guidance and encouragement. For financial support, the first author is grateful to East China Normal University, the second author acknowledges the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science, and the third author wishes to acknowledge Hong Kong Baptist University.
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https://eprints.ucm.es/id/eprint/15059/1/1209.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 (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)
Working Paper: Robust Estimation and Forecasting of the Capital Asset Pricing Model (2010)
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