Publication Type
Working Paper
Version
publishedVersion
Publication Date
7-2019
Abstract
It is well-known that the standard estimators of the risk premium in asset pricing models are biased when some price factors are omitted. To address this problem, we propose a novel quantile-based asset pricing model and a new estimation method. Our new asset pricing model allows for the risk premium to be quantile-dependent and our estimation method is applicable to models with unobserved factors. It avoids biased estimation results and always ensures a positive risk premium. The method is applied to the U.S., Japan, and U.K. stock markets. The empirical analysis demonstrates the clear benefits of our approach.
Keywords
Five-factor model, Quantile-based asset pricing model, Risk premium
Discipline
Econometrics
Research Areas
Econometrics
Publication
SMU Economics and Statistics Working Paper Series, Paper No. 15-2019
First Page
1
Last Page
51
Embargo Period
8-6-2019
Citation
ANDO, Tomohiro; BAI, Jushan; NISHIMURA, Mitohide; and YU, Jun.
A quantile-based asset pricing model. (2019). SMU Economics and Statistics Working Paper Series, Paper No. 15-2019. 1-51.
Available at: https://ink.library.smu.edu.sg/soe_research/2290
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.