Estimating Pervasive Economic Factors with Missing Observations

35 Pages Posted: 18 Sep 2008  

Gregory Connor

London School of Economics & Political Science (LSE) - Department of Accounting and Finance

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Date Written: April 1987

Abstract

We suggest a technique for estimating pervasive economic factors which allows the use of all available security return data. The resulting factor estimates can be used in applications and tests of the Arbitrage Pricing Theory (APT). An obvious advantage of the technique is that more precise estimates of the factors are obtained while avoiding potential survivorship biases in factor construction. Empirically, the factor estimates using the entire data set outperform (in terms of asset pricing) estimates using only continuously traded assets.

Keywords: Factor Models, Arbitrage Pricing Theory

JEL Classification: G10, G12

Suggested Citation

Connor, Gregory and Korajczyk, Robert A., Estimating Pervasive Economic Factors with Missing Observations (April 1987). Available at SSRN: https://ssrn.com/abstract=1268954 or http://dx.doi.org/10.2139/ssrn.1268954

Gregory Connor

London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 702 955-6407 (Phone)
+44 702 955-7420 (Fax)

Robert A. Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

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