Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates
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By replacing the unknown random factors of factor analysis with observed macroeconomic variables, the arbitrage pricing theory (APT) is recast as a multivariate nonlinear regression model with across-equation restrictions. An explicit theoretical justification for the inclusion of an arbitrary, well-diversified market index is given. Using monthly returns on 70 stocks, iterated nonlinear seemingly unrelated regression techniques are employed to obtain joint estimates of asset sensitivities and their associated APT risk “prices.” Without the assumption oi normally distributed errors, these estimators are strongly consistent and asymptotically normal. With the additional assumption of normal errors, they are also full-information maximum likelihood estimators. Classical asymptotic nonlinear nested hypothesis tests are supportive of the APT with measured macroeconomic factors. © 1988 American Statistical Association.
Published Version (Please cite this version)10.1080/07350015.1988.10509634
Publication InfoMcElroy, MB; & Burmeister, E (1988). Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates. Journal of Business and Economic Statistics, 6(1). pp. 29-42. 10.1080/07350015.1988.10509634. Retrieved from https://hdl.handle.net/10161/1880.
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Research Professor Emeritus of Economics
Professor of Economics
Professor McElroy focuses her research on the subjects of labor, demand systems, and financial economics. She has completed several of her research projects under the funding provided by National Science Foundation grants, including her latest work on the economics of the family in relation to bargain decision-making and marriage markets. She is also currently investigating altruism in marriage markets and bargaining on the core in marriage markets. She has also completed studies involving th
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