Abstract

http://ssrn.com/abstract=2023804
 
 

References (18)



 


 



Estimating and Testing Dynamic Corporate Finance Models


Santiago Bazdresch


University of Minnesota - Finance Department

R. Jay Kahn


University of Michigan, Stephen M. Ross School of Business, Students

Toni M. Whited


University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

August 16, 2016


Abstract:     
We assess the finite sample performance of simulation estimators that are used to estimate the parameters of dynamic corporate finance models. We formulate an out-of-sample specification test and propose a new set of statistical benchmarks that can be used to estimate and evaluate these models. These benchmarks are based on model policy functions. Our Monte Carlo simulations show that the estimators are largely unbiased with low root mean squared errors. When computed with an optimal weight matrix, the t-tests and specification tests associated with the estimators are close to correctly sized. The specification tests have excellent power to detect misspecification.

Number of Pages in PDF File: 46

Keywords: dynamic models of capital structure, policy function, value function, model evaluation, Monte Carlo

JEL Classification: C14, C52, C61, G31, G32


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Date posted: March 17, 2012 ; Last revised: August 17, 2016

Suggested Citation

Bazdresch, Santiago and Kahn, R. Jay and Whited, Toni M., Estimating and Testing Dynamic Corporate Finance Models (August 16, 2016). Available at SSRN: http://ssrn.com/abstract=2023804 or http://dx.doi.org/10.2139/ssrn.2023804

Contact Information

Santiago Bazdresch (Contact Author)
University of Minnesota - Finance Department ( email )
321 19th Avenue South
Room 3-122
Minneapolis, MN 55455
United States
R. Jay Kahn
University of Michigan, Stephen M. Ross School of Business, Students ( email )
Ann Arbor, MI
United States
Toni M. Whited
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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