Asymptotic variance approximations for invariant estimators in uncertain asset-pricing models

Nikolay Gospodinov, Raymond Kan and Cesare Robotti ()

No 2015-9, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper derives explicit expressions for the asymptotic variances of the maximum likelihood and continuously updated GMM estimators under potentially misspecified models. The proposed misspecification-robust variance estimators allow the researcher to conduct valid inference on the model parameters even when the model is rejected by the data. Although the results for the maximum likelihood estimator are only applicable to linear asset-pricing models, the asymptotic distribution of the continuously updated GMM estimator is derived for general, possibly nonlinear, models. The large corrections in the asymptotic variances, which arise from explicitly incorporating model misspecification in the analysis, are illustrated using simulations and an empirical application.

Keywords: asset pricing; model misspecification; continuously updated GMM; maximum likelihood; asymptotic approximation; misspecification-robust tests (search for similar items in EconPapers)
JEL-codes: C12 C13 G12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-10-01
New Economics Papers: this item is included in nep-ecm and nep-ore
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... tions/wp/2015/09.pdf (application/pdf)

Related works:
Journal Article: Asymptotic variance approximations for invariant estimators in uncertain asset-pricing models (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2015-09

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().