A New Approach Based on Cumulants for Estimating Financial Regression Models with Errors in the Variables: the Fama and French Model Revisited
This paper proposes to revisit both the CAPM and the three-factor model of Fama and French (1993) in presence of errors in the variables. To reduce the bias induced by measurement and specification errors, we transpose to the cost of equity an estimator based on cumulants of order three and four initially developed by Dagenais and Dagenais (1997) and lated generalized to financial models by Racicot (2003). Our results show that our technique has great and significant consequences on the measure of the cost of equity. We obtain ipso facto a new estimator of the Jensen alpha.
|Date of creation:||01 May 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Pavillon Lucien Brault, 101 rue Saint Jean-Bosco, Gatineau (Québec) J8Y 3G5|
Phone: (819) 595-3900
Fax: (819) 773-1747
Web page: http://www.repad.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Kothari, S P & Shanken, Jay & Sloan, Richard G, 1995. " Another Look at the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 185-224, March.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, June.
- Dagenais, Marcel G., 1994. "Parameter estimation in regression models with errors in the variables and autocorrelated disturbances," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 145-163.
- MacKinnon, James G, 1992. "Model Specification Tests and Artificial Regressions," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 102-46, March.
- Dagenais, Marcel G. & Dagenais, Denyse L., 1997. "Higher moment estimators for linear regression models with errors in the variables," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 193-221.
- Klepper, Steven & Leamer, Edward E, 1984. "Consistent Sets of Estimates for Regressions with Errors in All Variables," Econometrica, Econometric Society, vol. 52(1), pages 163-83, January.
- Francois-Éric Racicot & Raymond Théoret & Alain Coen, 2006. "Towards New Empirical Versions of Financial and Accounting Models Corrected for Measurement Errors," RePAd Working Paper Series UQO-DSA-wp132006, Département des sciences administratives, UQO.
- Aigner, Dennis J. & Hsiao, Cheng & Kapteyn, Arie & Wansbeek, Tom, 1984. "Latent variable models in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 23, pages 1321-1393 Elsevier.
- Francois-Éric Racicot, 2000. "Estimation et tests en présence d'erreurs de mesure sur les variables explicatives : vérification empirique par la méthode de simulation Monte Carlo," RePAd Working Paper Series UQO-DSA-wp022008, Département des sciences administratives, UQO.
- Pal, Manoranjan, 1980. "Consistent moment estimators of regression coefficients in the presence of errors in variables," Journal of Econometrics, Elsevier, vol. 14(3), pages 349-364, December.
When requesting a correction, please mention this item's handle: RePEc:pqs:wpaper:142006. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Calmes)
If references are entirely missing, you can add them using this form.