Estimating the Risk-Return Trade-off with Overlapping Data Inference / Esben Hedegaard, Robert J. Hodrick.

Format:

Book

Author/Creator:

Hedegaard, Esben.

Contributor:

National Bureau of Economic Research.

Hodrick, Robert J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19969.

NBER working paper series no. w19969

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

Asset pricing models such as the conditional CAPM are typically estimated with MLE using a monthly or quarterly horizon with data sampled to match the horizon even though daily data are available. We develop an overlapping data inference methodology (ODIN) that uses all of the data while maintaining the monthly or quarterly forecasting period, and we apply it to the conditional CAPM. Our approach recognizes that the first order conditions of MLE can be used as orthogonality conditions of GMM. Using historical data, we find considerable differences in the estimates from the non-overlapping samples that begin on different days.

Notes:

Print version record

March 2014.