Do Multi-Factor Models Produce Robust Results? Econometric And Diagnostic Issues In Equity Risk Premia Study
PBN-AR
Instytucja
Wydział Nauk Ekonomicznych (Uniwersytet Warszawski)
Informacje podstawowe
Główny język publikacji
pl
Czasopismo
Studia Ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach
ISSN
2083-8611
EISSN
Wydawca
Uniwersytet Ekonomiczny w Katowicach
DOI
Rok publikacji
2016
Numer zeszytu
Strony od-do
Numer tomu
Link do pełnego tekstu
Identyfikator DOI
Liczba arkuszy
Autorzy
Słowa kluczowe
en
multi-factor models
asset prising models
equity risk premia
OLS
MLE
GMM
autocorrelation
heteroscedasticity
outliers
collinearity
normality
econometric diagnostics
Streszczenia
Język
en
Treść
In recent decades numerous studies verified empirical validity of the CAPM model. Many of them showed that CAPM alone is not able to explain cross-sectional variation of stock returns. Researchers revealed various risk factors which explained outperformance of given groups of stocks or proposed modifcations to existing multi-factor models. Surprisingly, we hardly find any discussion in financial literature about potential drawbacks of applying standard OLS method to estimate parameters of such models. Yet, the question of robustness of OLS results to invalid assumptions shouldn't be ignored. This article aims to address diagnostic and econometric issues which can influence results of a time-series multifactor model. Based on the preliminary results of a five-factor model for 81 emerging and developed equity indices (Sakowski, Slepaczuk and Wywial, 2016a) obtained with OLS we check the robustness of these results to popular violations of OLS assumptions. We find autocorrelation of error term, heteroscedasticity and ARCH effects for most of 81 regressions and apply an AR-GARCH model using MLE to remove them. We also identify outliers and diagnose collinearity problems. Additionally, we apply GMM to avoid strong assumption of IID error term. Finally, we present comparison of parameters estimates and Rsquared values obtained by three different methods of estimation: OLS, MLE and GMM. We find that results do not differ substantially between these three methods and allow to draw the same conclusions from the investigated five-factor model.
Cechy publikacji
Ekonomia
Nauki o zarządzaniu – dziedzina nauk ekonomicznych
Economics
Management – field of economics
discipline:Finanse
discipline:Finance
Original article
Original article presents the results of original research or experiment.
Oryginalny artykuł naukowy
Oryginalny artykuł naukowy przedstawia rezultaty oryginalnych badań naukowych lub eksperymentu.
Inne
System-identifier
PBN-R:791721