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Evaluation of Asset Pricing Models Using Two-Pass Cross-Sectional Regressions

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Part of the book series: Springer Handbooks of Computational Statistics ((SHCS))

Abstract

This chapter provides a review of the two-pass cross-sectional regression methodology, which over the years has become the most popular approach for estimating and testing linear asset pricing models. We focus on some of the recent developments of this methodology and highlight the importance of accounting for model misspecification in estimating risk premia and in comparing the performance of competing asset pricing models.

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Authors and Affiliations

  1. Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON, Canada, M5S 3E6

    Raymond Kan

  2. Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. N.E., Atlanta, GA, 30309, USA

    Cesare Robotti

Authors
  1. Raymond Kan
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  2. Cesare Robotti
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Correspondence to Raymond Kan .

Editor information

Editors and Affiliations

  1. , Risk Management Institute, National University of Singapore, 21 Heng Mui Keng Terrace, Level 4, Singapore, 119613, Singapore

    Jin-Chuan Duan

  2. L.v.Bortkiewicz Chair of Statistics, C.A.S.E. Centre f. Appl. Stat. & Econ., Humboldt-Universität zu Berlin, Unter den Linden 6, Berlin, 10099, Germany

    Wolfgang Karl Härdle

  3. , Department of Computational and Data Sci, George Mason University, University Drive 4400, Fairfax, 22030, Virginia, USA

    James E. Gentle

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Kan, R., Robotti, C. (2012). Evaluation of Asset Pricing Models Using Two-Pass Cross-Sectional Regressions. In: Duan, JC., Härdle, W., Gentle, J. (eds) Handbook of Computational Finance. Springer Handbooks of Computational Statistics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-17254-0_9

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