IDEAS home Printed from https://ideas.repec.org/a/bla/obuest/v59y1997i1p163-81.html
   My bibliography  Save this article

A Reduced Rank Regression Approach to Tests of Asset Pricing

Author

Listed:
  • Costa, Michele
  • Gardini, Attilio
  • Paruolo, Paolo

Abstract

Both the Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model (CAPM) place restrictions of the cross sectional variation of conditional expectations of asset returns and of macro-indicators. The authors show that these restrictions imposed on the reference statistical models lead to special cases of the reduced rank regression model. The maximum likelihood problem is solved by canonical correlation analysis. Likelihood ratio tests about the number of factors underlying stock returns are straightforward to calculate, thus allowing to discriminate between competing financial theories. Moreover LR tests on the relevance of each macroeconomic indicator within a chosen model can be implemented. Some of the tests are illustrated by an application to Italian stock market data. Copyright 1997 by Blackwell Publishing Ltd

Suggested Citation

  • Costa, Michele & Gardini, Attilio & Paruolo, Paolo, 1997. "A Reduced Rank Regression Approach to Tests of Asset Pricing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 163-181, February.
    • Handle: RePEc:bla:obuest:v:59:y:1997:i:1:p:163-81
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. W. M. Tang & K. F. C. Yiu & H. Wong, 2020. "Subset Selection Using Frequency Decomposition with Applications," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 195-220, March.
    2. Francisco J. Goerlich-Gisbert, 1999. "Shocks agregados versus shocks sectoriales. Un análisis factorial dinámico," Investigaciones Economicas, Fundación SEPI, vol. 23(1), pages 27-53, January.
    3. Peter Hansen, 2002. "Generalized Reduced Rank Regression," Working Papers 2002-02, Brown University, Department of Economics.
    4. Scott Gilbert & Petr Zemčík, 2005. "Testing for Latent Factors in Models with Autocorrelation and Heteroskedasticity of Unknown Form," Southern Economic Journal, John Wiley & Sons, vol. 72(1), pages 236-252, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:59:y:1997:i:1:p:163-81. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfeixuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.