Questions tagged [gmm]
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10 questions
2 votes
0 answers
112 views
Why did Fama & French prefer Fama-MacBeth to GMM?
In their asset pricing papers that I have seen (including some late ones from 2010s), Fama & French used the two stage procedure of Fama-MacBeth (FM) from 1973. Since 1982, GMM was available as an ...
- 3,486
1 vote
0 answers
53 views
GMM methods for two-pass regression
I am studying GMM methods for two-pass regression (time series regression for beta estimation and then cross-sectional regression for lambda estimation). I get that we can use GMM for cross-sectional ...
- 11
1 vote
1 answer
545 views
R resources for GMM estimation and testing of multifactor asset pricing models
Has anyone seen R script for GMM estimation and testing of asset pricing models such as Fama-French 3-factor or similar? Ideally, I would like to have R scripts corresponding to Cochrane "Asset ...
- 3,486
1 vote
1 answer
116 views
Incorporating idiosyncratic risk as a pricing factor with GMM
Suppose we are given a dataset with $T$ time periods and $N$ assets or portfolios. We are interested in estimating and testing an augmented CAPM or a multifactor model with an additional factor: the ...
- 3,486
2 votes
2 answers
316 views
GMM estimation of the CAPM: why not include sample mean of the market excess return as a moment?
I am trying to wrap my head around GMM estimation of a single factor model such as the CAPM. I started by asking How come the cross-sectional CAPM equation produces $N$ moment conditions (not $1$)? ...
- 3,486
2 votes
1 answer
131 views
How come the cross-sectional CAPM equation produces $N$ moment conditions (not $1$)?
Reading Cochrane "Asset Pricing" (2005) section 12.2 (p. 241), I got lost in the derivation of the GMM estimator for the single-factor model. Equation $(12.23)$ says the moments are $$ g_T(b)...
- 3,486
1 vote
0 answers
109 views
2-step system-GMM for static panel models?
Could we use the 2-step system generalized method of moment (GMM) for static regression models? As I know, 2-step system GMM is designed for dynamic panel data models but I see many papers use it for ...
- 11
5 votes
0 answers
181 views
How to decompose the variance of log book-to-market ratio into components using GMM in Vuolteenaho (1999)?
I'm reading Vuolteenaho(1999). In this article, the author investigates whether the variation in stock market valuation level is driven by expected future cash-flows or by expected returns. In part V....
- 293
2 votes
0 answers
384 views
Generalized method of moments concept in CAPM testing
In the course of my master thesis I’ve come across a paper by Carr and Wu (2009) where the authors evaluate whether returns on variance swaps can be explained by the simple CAPM. (really only market ...
- 21
7 votes
0 answers
525 views
GMM time-series regression factor model with factors that are not returns
Factor models with factors that are not returns are usually estimated and tested by cross-sectional regressions. However, there is a way to use time-series regression to estimate and test the model. ...
- 171