TY - JOUR
T1 - Dynamic functional regression with application to the cross-section of returns
AU - Kokoszka, Piotr
AU - Miao, Hong
AU - Reimherr, Matthew
AU - Taoufik, Bahaeddine
PY - 2018/6/1
Y1 - 2018/6/1
N2 - Motivated by testing the significance of risk factors for a cross-section of returns, we develop an inferential framework which involves function-on-scalar regression. Asymptotic theory is developed assuming the factors form a weakly dependent vector-valued time series, and the regression errors are weakly dependent functions. To accommodate the empirical behavior of the cross-section of returns and of the factors, we allow both the factors and the error functions can exhibit mild departures from stationarity. This requires new asymptotic theory which leads to several tests for the significance of function-valued regression coefficients. The new approach to the study of the significance of risk factors for a cross-section of returns complements the established Fama-French approach based on portfolio construction. It ismore suitable if the statistical significance of the risk factors is to be rigorously controlled.
AB - Motivated by testing the significance of risk factors for a cross-section of returns, we develop an inferential framework which involves function-on-scalar regression. Asymptotic theory is developed assuming the factors form a weakly dependent vector-valued time series, and the regression errors are weakly dependent functions. To accommodate the empirical behavior of the cross-section of returns and of the factors, we allow both the factors and the error functions can exhibit mild departures from stationarity. This requires new asymptotic theory which leads to several tests for the significance of function-valued regression coefficients. The new approach to the study of the significance of risk factors for a cross-section of returns complements the established Fama-French approach based on portfolio construction. It ismore suitable if the statistical significance of the risk factors is to be rigorously controlled.
UR - http://www.scopus.com/inward/record.url?scp=85051550090&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85051550090&partnerID=8YFLogxK
U2 - 10.1093/jjfinec/nbx027
DO - 10.1093/jjfinec/nbx027
M3 - Article
AN - SCOPUS:85051550090
VL - 16
SP - 461
EP - 485
JO - Journal of Financial Econometrics
JF - Journal of Financial Econometrics
SN - 1479-8409
IS - 3
ER -