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Robust Estimation of Multiple Regression Model with asymmetric innovations and Its Applicability on Asset Pricing Model

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Author Info
Wing-Keung Wong (National University of Singapore)
Guorui Bian (East China Normal University, China)

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Abstract

In this paper, we first develop the modified maximum likelihood (MML) estimators for the multiple regression coefficients in linear model with the underlying distribution assumed to be symmetric, one of Student's t family. We obtain the closed form of the estimators and derive their asymptotic properties. In addition, we demonstrate that the MML estimators are more appropriate to estimate the parameters in the Capital Asset Pricing Model by comparing its performance with that of least squares estimators (LSE) on the monthly returns of US portfolios. Our empirical study reveals that the MML estimators are more efficient than the LSE in terms of relative efficiency of one-step-ahead forecast mean square error for small samples.

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Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0508.

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Date of creation: May 2005
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Handle: RePEc:nus:nusewp:wp0508

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Related research
Keywords: Maximum likelihood estimators Modified maximum likelihood estimators Student’s t family Capital Asset Pricing Model Robustness

Find related papers by JEL classification:
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
G1 - Financial Economics - - General Financial Markets

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  6. Wing-Keung Wong & Raymond H. Chan, 2004. "On the Estimation of Cost of Capital and its Reliability," Departmental Working Papers wp0401, National University of Singapore, Department of Economics. [Downloadable!]
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  13. Amemiya, Yasuo, 1985. "Instrumental variable estimator for the nonlinear errors-in-variables model," Journal of Econometrics, Elsevier, vol. 28(3), pages 273-289, June. [Downloadable!] (restricted)
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