Abstract

http://ssrn.com/abstract=686220
 
 

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Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models


Cesare Robotti


Imperial College Business School

Pierluigi Balduzzi


Boston College - Carroll School of Management

January 2005

AFA 2006 Boston Meetings Paper

Abstract:     
We consider two formulations of the linear factor model with non-traded factors. In the first formulation (LFM), risk premia and alphas are estimated by a cross-sectional regression of average returns on betas. In the second formulation (LFM*), the factors are replaced by their projections on the span of excess returns, and risk premia and alphas are estimated by time-series regressions. We compare the two formulations and we study the small-sample properties of estimates and test statistics. We conclude that the LFM* formulation should be considered in addition, or even instead, of the more traditional LFM formulation.

Number of Pages in PDF File: 51

Keywords: Mimicking Portfolios, Economic Risk Premia, Multi-Beta Models

JEL Classification: G12


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Date posted: March 25, 2005  

Suggested Citation

Robotti, Cesare and Balduzzi, Pierluigi, Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models (January 2005). Atlanta Fed Working Paper. Available at SSRN: http://ssrn.com/abstract=686220 or http://dx.doi.org/10.2139/ssrn.686220

Contact Information

Cesare Robotti
Imperial College Business School
South Kensington Campus
Exhibition Road
London SW7 2AZ, Greater London SW7 2AZ
United Kingdom
+447854400536 (Phone)
Pierluigi Balduzzi (Contact Author)
Boston College - Carroll School of Management ( email )
Department of Finance
140 Commonwealth Avenue - Fulton Hall 438
Chestnut Hill, MA 02467
United States
617-552-3976 (Phone)
617-552-0431 (Fax)
HOME PAGE: http://www.bc.edu/bc_org/avp/csom/faculty/
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