The Pástor-Stambaugh empirical model revisited: Evidence from robust instruments

Racicot, François-Éric; Rentz, William F.

doi:10.1057/jam.2015.22

Cited by 22 publications

(23 citation statements)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This suggests that the SMB factor contains significant measurement errors. The results are consistent with Racicot and Rentz (2015).…”

Section: Estimating the Six-factor Asset Pricing Model With Specificasupporting

confidence: 89%

“…where b ε i is the estimated residual from our proposed six-factor asset pricing regression equation (1). As in Racicot and Rentz (2015), the coefficients of this regression disaggregate the effect of each regressor with the error term. Therefore, the resulting coefficients are analogous to the partial correlation coefficients.…”

Section: Exogeneity Testmentioning

confidence: 99%

“…To estimate the parameters of the new six-factor asset pricing model for the four sets of variant portfolios, we use Ordinary Least Squares (OLS) and the IVGMM approach. Simultaneously, we perform a weak instrumental variable test (Racicot & Rentz, 2015) to check for the validity of the instruments, tests of overidentifying restrictions (Hansen, 1982;Olea & Pflueger, 2013), and the Hausman test (Hausman, 1978) to check the specification and measurement errors. These robustness tests further validate the economic and statistical significance of the empirical results.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A six-factor asset pricing model

Roy

Shijin

2018

Borsa Istanbul Review

View full text Add to dashboard Cite

The present study introduce the human capital component to the Fama and French five-factor model proposing an equilibrium six-factor asset pricing model. The study employs an aggregate of four sets of portfolios mimicking size and industry with varying dimensions. The first set consists of three set of six portfolios each sorted on size to B/M, size to investment, and size to momentum. The second set comprises of five index portfolios, third, a four-set of twenty-five portfolios each sorted on size to B/M, size to investment, size to profitability, and size to momentum, and the final set constitute thirty industry portfolios. To estimate the parameters of six-factor asset pricing model for the four sets of variant portfolios, we use OLS and Generalized method of moments based robust instrumental variables technique (IVGMM). The results obtained from the relevance, endogeneity, overidentifying restrictions, and the Hausman's specification, tests indicate that the parameter estimates of the six-factor model using IVGMM are robust and performs better than the OLS approach. The human capital component shares equally the predictive power alongside the factors in the framework in explaining the variations in return on portfolios. Furthermore, we assess the t-ratio of the human capital component of each IVGMM estimates of the six-factor asset pricing model for the four sets of variant portfolios. The t-ratio of the human capital of the eighty-three IVGMM estimates are more than 3.00 with reference to the standard proposed by Harvey et al. (2016). This indicates the empirical success of the six-factor asset-pricing model in explaining the variation in asset returns.

show abstract

“…This suggests that the SMB factor contains significant measurement errors. The results are consistent with Racicot and Rentz (2015).…”

Section: Estimating the Six-factor Asset Pricing Model With Specificasupporting

confidence: 89%

Section: Exogeneity Testmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

A six-factor asset pricing model

Roy

Shijin

2018

Borsa Istanbul Review

View full text Add to dashboard Cite

show abstract

“…Two features of this approach are that it (i) is a parsimonious because it does not require much computational power and (ii) it can be viewed as minimizing a distance (d) measure. This GMM approach is referred to as GMM d in our previous work (Racicot and Théoret 2014;Racicot and Rentz, forthcoming). The GMM d instruments are obtained using a weighted average of the Durbin's and Pal's estimators (see Dagenais and Dagenais, 1994).…”

Section: Introductionmentioning

confidence: 99%

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Racicot

Rentz

2015

Applied Economics Letters

Self Cite

View full text Add to dashboard Cite

Fama and French (FF, 2015) propose a five-factor asset pricing model that captures size, value, profitability and investment patterns. The primary purpose here is to further investigate this new model using an improved GMM-based robust instrumental variables technique. A further purpose is to explore the relationship among the FF factors and the Pástor-Stambaugh (PS, 2003) liquidity factor. We conclude that except for the market factor, all of the factors including liquidity are not significant at even the 5% level using our GMM approach for almost all of the FF 12 sectors.

show abstract

“…7is the GMM-based robust instrumental variables technique (see Le Yu & Sokbae, 2018). As highlighted by Racicot and Rentz (2015) (see also Racicot & Rentz, 2016 and the references therein) it is important to account for the presence of measurement errors and endogeneity that may lead to an inconsistent estimation when the ordinary least squares method is applied to a Fama and French-type model. Recent research has highlighted that liquidity, for example, may endogenously reveal itself during a period of financial turmoil (see Adrian, Fleming, Shachar, & Vogt, 2017).…”

Section: Tablementioning

confidence: 99%

Hedge Fund Strategies: A non-Parametric Analysis

2019

View full text Add to dashboard Cite

We investigate why top performing hedge funds are successful. We find evidence that top performing hedge funds follow a different strategy than mediocre performing hedge funds as they accept risk factors that do and avoid factors than do not anticipate the troubling economic conditions prevailing after 2006. Holding alpha performance constant, top performing funds avoid relying on passive investment in illiquid investments but earn risk premiums by accepting market risk. Additionally, they seem able to exploit fleeting opportunities leading to momentum profits while closing losing strategies thereby avoiding momentum reversal.

show abstract

The Pástor-Stambaugh empirical model revisited: Evidence from robust instruments

Cited by 22 publications

References 47 publications

A six-factor asset pricing model

A six-factor asset pricing model

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Hedge Fund Strategies: A non-Parametric Analysis

Contact Info

Product

Resources

About