Frank Kleibergen, Zhaoguo Zhan
arXiv 27 Jun 2022 · Econometrics · 1 citations (OpenAlex)
arXiv:2206.13600 · PDF · DOI · OpenAlex · Extracted main text
The widespread co-existence of misspecification and weak identification in asset pricing has led to an overstated performance of risk factors. Because the conventional Fama and MacBeth (1973) methodology is jeopardized by misspecification and weak identification, we infer risk premia by using a double robust Lagrange multiplier test that remains reliable in the presence of these two empirically relevant issues. Moreover, we show how the identification, and the resulting appropriate interpretation, of the risk premia is governed by the relative magnitudes of the misspecification J-statistic and the identification IS-statistic. We revisit several prominent empirical applications and all specifications with one to six factors from the factor zoo of Feng, Giglio, and Xiu (2020) to emphasize the widespread occurrence of misspecification and weak identification.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Kleibergen F. and Z. Zhan (2015) Unexplained factors and their effects on second pass r-squared's self | 0.843 | 3 | 3 | 100% |
| 2 | Kleibergen, F (2009) Tests of Risk Premia in Linear Factor Models self | 0.811 | 4 | 2 | 100% |
| 3 | Kan, R., C. Robotti and J. Shanken (2013) Pricing Model Performance and the Two-Pass Cross-Sectional Regression Methodology | 0.811 | 4 | 2 | 100% |
| 4 | Feng, G. and Giglio, S. and Xiu, D (2020) Taming the factor zoo: A test of new factors | 0.737 | 3 | 2 | 100% |
| 5 | Kan, R. and C. Zhang (1999) Two-Pass Tests of Asset Pricing Models with Useless Factors | 0.737 | 3 | 2 | 100% |
| 6 | Shanken, J (1992) On the Estimation of Beta-Pricing Models | 0.737 | 3 | 2 | 100% |
| 7 | Hansen, L.P., J. Heaton and A. Yaron (1996) Finite Sample Properties of Some Alternative GMM Estimators | 0.644 | 2 | 2 | 100% |
| 8 | Kleibergen, F. and Z. Zhan (2020) Robust Inference for Consumption-Based Asset Pricing self | 0.511 | 2 | 1 | 100% |
| 9 | Staiger, D. and J.H. Stock (1997) Instrumental Variables Regression with Weak Instruments | 0.511 | 2 | 1 | 100% |
| 10 | Kroencke, T.A (2017) Asset Pricing without Garbage | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 37 scored citations.