Regression-Based Estimation of Dynamic Asset Pricing Models

55 Pages Posted: 12 May 2011 Last revised: 9 Dec 2014

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Richard K. Crump

Federal Reserve Banks - Federal Reserve Bank of New York

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2014

Abstract

We propose regression-based estimators for beta representations of dynamic asset pricing models with an affine pricing kernel specification. We allow for state variables that are cross-sectional pricing factors, forecasting variables for the price of risk, and factors that are both. The estimators explicitly allow for time-varying prices of risk, time-varying betas, and serially dependent pricing factors. Our approach nests the Fama-MacBeth two-pass estimator as a special case. We provide asymptotic multistage standard errors necessary to conduct inference for asset pricing test. We illustrate our new estimators in an application to the joint pricing of stocks and bonds. The application features strongly time-varying, highly significant prices of risks that are found to be quantitatively more important than time-varying betas in reducing pricing errors.

Keywords: dynamic asset pricing, Fama-MacBeth regression, financial econometrics, GMM, minimum distance estimation, reduced rank regression

JEL Classification: G10, G12, C58

Suggested Citation

Adrian, Tobias and Crump, Richard K. and Moench, Emanuel, Regression-Based Estimation of Dynamic Asset Pricing Models (December 8, 2014). FRB of New York Staff Report No. 493, Available at SSRN: https://ssrn.com/abstract=1837531 or http://dx.doi.org/10.2139/ssrn.1837531

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Richard K. Crump

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )

Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
223
Abstract Views
1,849
rank
151,518
PlumX Metrics