Peer-Reviewed Journal Details
Mandatory Fields
Connor, G;Korajczyk, RA;Uhlaner, RT
2015
August
Journal of Financial and Quantitative Analysis
A Synthesis of Two Factor Estimation Methods
Published
0 ()
Optional Fields
ARBITRAGE PRICING THEORY CROSS-SECTION STOCK RETURNS RISK PREMIA MODELS TESTS EQUILIBRIUM
50
825
842
Two-pass cross-sectional regression (TPCSR) is frequently used in estimating factor risk premia. Recent papers argue that the common practice of grouping assets into portfolios to reduce the errors-in-variables (EIV) problem leads to loss of efficiency and masks potential deviations from asset pricing models. One solution that allows the use of individual assets while overcoming the EIV problem is iterated TPCSR (ITPCSR). ITPCSR converges to a fixed point regardless of the initial factors chosen. ITPCSR is intimately linked to the asymptotic principal components (APC) method of estimating factors since the ITPCSR estimates are the APC estimates, up to a rotation.
NEW YORK
0022-1090
10.1017/S0022109015000307
Grant Details