Connor, Gregory (2015) A Synthesis of Two Factor Estimation Methods. Journal of Financial and Quantitative Analysis, 50. pp. 825-842. ISSN 0022-1090

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Abstract

Two-pass cross-sectional regression (TPCSR) is frequently used in estimating factor risk premia. Recent papers argue that the common practice of grouping assets into portfolios to reduce the errors-in-variables (EIV) problem leads to loss of efficiency and masks potential deviations from asset pricing models. One solution that allows the use of individual assets while overcoming the EIV problem is iterated TPCSR (ITPCSR). ITPCSR converges to a fixed point regardless of the initial factors chosen. ITPCSR is intimately linked to the asymptotic principal components (APC) method of estimating factors since the ITPCSR estimates are the APC estimates, up to a rotation.

Item Type:	Article
Keywords:	Synthesis; Two Factor; Estimation; Methods;
Academic Unit:	Faculty of Social Sciences > Economics, Finance and Accounting
Item ID:	8431
Identification Number:	https://doi.org/10.1017/S0022109015000307
Depositing User:	Gregory Connor
Date Deposited:	11 Jul 2017 14:08
Journal or Publication Title:	Journal of Financial and Quantitative Analysis
Publisher:	Cambridge University Press
Refereed:	Yes
URI:	Publisher
Use Licence:	This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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