2020年3月13日
吕漫妮
3
the Euler equation for
investment returns
Discount factor is
linear in factors.
The factors and loadings are unobservable, how?
Treats these factors as observable by
the econometrician, and estimates
betas and alphas via regression
e.g. Fama and French (1993).
Treats risk factors as latent and use factor analytic
techniques, such as PCA, to estimate the factors and
betas, e.g. Chamberlain and Rothschild (1983) and
Connor and Korajczyk (1986).
Instrumented Principal Components Analysis (IPCA)
allows factor loadings to partially depend on observable
asset characteristics that serve as instrumental variables.
Why different assets earn
different average returns?
Models stock returns as a
function of many
characteristics at once
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