Estimating Beta pricing models with or without an Intercept : results from simulations

Bänziger-Aiba, Armin; Gramespacher, Thomas

Publication type:	Article in scientific journal
Type of review:	Peer review (publication)
Title:	Estimating Beta pricing models with or without an Intercept : results from simulations
Authors:	Bänziger-Aiba, Armin Gramespacher, Thomas
Published in:	International Research Journal of Finance and Economics
Volume(Issue):	2015
Issue:	140
Page(s):	76
Pages to:	82
Issue Date:	2015
Publisher / Ed. Institution:	INFE
ISSN:	1450-2887
Language:	English
Subjects:	Simulation study; Two-pass approach; Asset pricing econometrics; Cross-section regression
Subject (DDC):	330: Economics
Abstract:	The two-pass (cross-sectional) regression approach is widely used for estimating risk premia and testing factor pricing models. We investigate on two problems of the methodology, namely the error-in-variable bias and the large standard errors of the estimates. To mitigate these effects, we propose to run the first- and/or second-pass regression without an intercept (constant), hence imposing the theoretical restriction of the factor pricing model. We use simulations to assess the (finite sample) properties of estimators in the different regression specifications. Findings show that the error-in- variables bias and the standard errors of the estimates can be reduced considerably. Nevertheless, the standard errors remain substantial, even in large samples, so that statistical inference remains a challenging endeavour.
URI:	https://digitalcollection.zhaw.ch/handle/11475/12734
Fulltext version:	Published version
License (according to publishing contract):	Licence according to publishing contract
Departement:	School of Management and Law
Appears in collections:	Publikationen School of Management and Law

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Bänziger-Aiba, A., & Gramespacher, T. (2015). Estimating Beta pricing models with or without an Intercept : results from simulations. International Research Journal of Finance and Economics, 2015(140), 76–82.

Bänziger-Aiba, A. and Gramespacher, T. (2015) ‘Estimating Beta pricing models with or without an Intercept : results from simulations’, International Research Journal of Finance and Economics, 2015(140), pp. 76–82.

A. Bänziger-Aiba and T. Gramespacher, “Estimating Beta pricing models with or without an Intercept : results from simulations,” International Research Journal of Finance and Economics, vol. 2015, no. 140, pp. 76–82, 2015.

BÄNZIGER-AIBA, Armin und Thomas GRAMESPACHER, 2015. Estimating Beta pricing models with or without an Intercept : results from simulations. International Research Journal of Finance and Economics. 2015. Bd. 2015, Nr. 140, S. 76–82

Bänziger-Aiba, Armin, and Thomas Gramespacher. 2015. “Estimating Beta Pricing Models with or without an Intercept : Results from Simulations.” International Research Journal of Finance and Economics 2015 (140): 76–82.

Bänziger-Aiba, Armin, and Thomas Gramespacher. “Estimating Beta Pricing Models with or without an Intercept : Results from Simulations.” International Research Journal of Finance and Economics, vol. 2015, no. 140, 2015, pp. 76–82.