A multifactor model of stock returns with endogenous regime switching
AbstractWe estimate a state-dependent multifactor model with two endogenous states. Its pricing accuracy is slightly superior to that of the Fama and French (1993, 1996) model. We have evidence for dramatically increased factor loadings for distress factors in one state. These results have implications for cost-of-capital calculations, portfolio management, risk analysis and other applications.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2004 with number 2004-01.
Length: 31 pages
Date of creation: Jan 2004
Date of revision:
Empirical asset pricing; endogenous regime switching; state-dependent models; nonstandard maximum-likelihood estimation;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-26 (All new papers)
- NEP-ETS-2004-05-16 (Econometric Time Series)
- NEP-FIN-2004-05-26 (Finance)
- NEP-FMK-2004-05-26 (Financial Markets)
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