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Efficient, regression-based estimation of dynamic asset pricing models

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  • Tobias Adrian
  • Richard K. Crump
  • Emanuel Moench

Abstract

We study regression-based estimators for beta representations of dynamic asset pricing models with affine and exponentially affine pricing kernel specifications. These estimators extend static cross-sectional asset pricing estimators to settings where prices of risk vary with observed state variables. We identify conditions under which four-stage regression-based estimators are efficient and also present alternative, closed-form linearized maximum likelihood (LML) estimators. We provide multi-stage standard errors necessary to conduct inference for asset pricing tests. In empirical applications, we find that time-varying prices of risk are pervasive, thus favoring dynamic cross-sectional asset pricing models over standard unconditional specifications.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 493.

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Date of creation: 2011
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Handle: RePEc:fip:fednsr:493

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Related research

Keywords: Asset pricing ; Econometric models ; Risk ; Regression analysis;

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Cited by:
  1. Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2013. "Leverage asset pricing," Staff Reports 625, Federal Reserve Bank of New York.

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