Statistics Seminar（2014-10）

Topic:A Semiparametric Conditional Capital Asset Pricing Model

Speaker:Yu Ren, Xiamen University

Time:Thursday, 8 May, 14:00-15:00

Location:Room 217, Guanghua Building 2

Abstract:This paper proposes using a functional coefficient regression technique to estimate time-varying betas and alpha in the conditional capital asset pricing model (CAPM). Functional coefficient representation relaxes the strict assumptions regarding the structure of betas and alpha by combining the predictors into an index. An appropriate index variable is selected by applying the smoothly clipped absolute deviation penalty. In such a way, estimation and variable selection can be done simultaneously. Based on the empirical studies, the proposed model performs better than the alternatives in explaining asset returns and we find no strong evidence to reject the conditional CAPM.