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Continuous-Time Fama-MacBeth Regressions

Author

Listed:
  • Yacine Aït-Sahalia
  • Jean Jacod
  • Dacheng Xiu

Abstract

We develop an asymptotic framework for conducting inference on continuous-time asset pricing models using high-frequency returns over an increasing time horizon. Our study focuses on the identification and estimation of risk premiums associated with the continuous component and jumps of various size brackets. We extend the classical Fama-MacBeth regression from the discrete-time setting to a continuous-time factor model, incorporating general dynamics for factors, idiosyncratic components, and factor loadings. Our empirical analysis of U.S. equities, foreign exchange, and commodities underscores the distinct significance of continuous and jump risk premiums for the specific factors constructed within each asset class in determining expected returns.

Suggested Citation

  • Yacine Aït-Sahalia & Jean Jacod & Dacheng Xiu, 2025. "Continuous-Time Fama-MacBeth Regressions," The Review of Financial Studies, Society for Financial Studies, vol. 38(12), pages 3542-3579.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:12:p:3542-3579.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf072
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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