Testing Beta-Pricing Models Using Large Cross-Sections

58 Pages Posted: 28 Feb 2017

See all articles by Valentina Raponi

Valentina Raponi

IESE Business School; Imperial College Business School

Cesare Robotti

Imperial College Business School

Paolo Zaffaroni

Imperial College Business School

Date Written: February 27, 2017

Abstract

Building on the Shanken (1992) estimator, we develop a new methodology for estimating and testing beta-pricing models when a large number of assets N is available but the number of time-series observations is small. We show empirically that our large N framework can change substantially common empirical findings regarding estimated risk premia and validity of beta-pricing models. We generalize our theoretical results to the more realistic case of unbalanced panels. The practical relevance of our findings is confirmed via Monte Carlo simulations.

Keywords: beta-pricing models, ex-post risk premia, two-pass cross-sectional regression, large $N$ asymptotics, specification test; unbalanced panel

JEL Classification: C12, C13, G12

Suggested Citation

Raponi, Valentina and Raponi, Valentina and Robotti, Cesare and Zaffaroni, Paolo, Testing Beta-Pricing Models Using Large Cross-Sections (February 27, 2017). Available at SSRN: https://ssrn.com/abstract=2924882 or http://dx.doi.org/10.2139/ssrn.2924882

Valentina Raponi

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Cesare Robotti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Paolo Zaffaroni (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
298
Abstract Views
1,434
rank
140,489
PlumX Metrics