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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27276
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| Title: | A BMWTV Approach to the Conditional Arbitrage Pricing Model |
| Authors: | Mei, Jianping |
| Issue Date: | 15-Sep-1994 |
| Series/Report no.: | FIN-94-045 |
| Abstract: | This paper develops a BMWTV approach to the estimation of factor
premiums by integrating the APT model of Burmeister and McElroy (1988)
with time-varying risk premiums. It provides premium estimates for
macro-factors over time under a unified APT framework which allows for
both observable and latent factors. We find significant negative risk
premiums for the market factor and the size factor during the sample
period. We discover that risk premium and sensitivity estimates for the
observable factors are quite sensitive to omitted latent factors,
suggesting the importance of accounting for missing latent factors in
conditional multi-factor models. We also find the mispricings under the
APT model and the CAPM model are relatively small, but the results are
quite sensitive to omitted factors. Our study shows that the variation
of the size premium appears to be related to business cycles. |
| URI: | http://hdl.handle.net/2451/27276 |
| Appears in Collections: | Finance Working Papers
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