Connor, Gregory (2007) Semiparametric estimation of a characteristic-based factor model of common stock returns. Journal of Empirical Finance, 14 (5). pp. 694-717. ISSN 0927-5398

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Abstract

We introduce an alternative version of the Fama–French three-factor model of stock returns together with a new estimation methodology. We assume that the factor betas in the model are smooth nonlinear functions of observed security characteristics. We develop an estimation procedure that combines nonparametric kernel methods for constructing mimicking portfolios with parametric nonlinear regression to estimate factor returns and factor betas simultaneously. The methodology is applied to US common stocks and the empirical findings compared to those of Fama and French.

Item Type:	Article
Keywords:	Characteristic-based factor model; Arbitrage pricing theory; Kernel estimation; Nonparametric estimation;
Academic Unit:	Faculty of Social Sciences > Economics, Finance and Accounting
Item ID:	8434
Depositing User:	Gregory Connor
Date Deposited:	11 Jul 2017 15:37
Journal or Publication Title:	Journal of Empirical Finance
Publisher:	Elsevier
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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