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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: | 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 |
| Related URLs: | |
| URI: | https://mural.maynoothuniversity.ie/id/eprint/8431 |
| 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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