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A Quantile-based Asset Pricing Model

Author

Listed:
  • Ando, Tomohiro

    (Melbourne University)

  • Bai, Jushan

    (Columbia University)

  • Nishimura, Mitohide

    (Nikko Asset Management Co. Ltd)

  • Yu, Jun

    (School of Economics, Singapore Management University)

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.

Suggested Citation

  • Ando, Tomohiro & Bai, Jushan & Nishimura, Mitohide & Yu, Jun, 2019. "A Quantile-based Asset Pricing Model," Economics and Statistics Working Papers 15-2019, Singapore Management University, School of Economics.
    • Handle: RePEc:ris:smuesw:2019_015
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    File URL: https://ink.library.smu.edu.sg/soe_research/2290/
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    More about this item

    Keywords

    Five-factor model; Quantile-based asset pricing model; Risk premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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