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Identification-robust and simultaneous inference in multifactor asset pricing models

Author

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  • Beaulieu, Marie-Claude
  • Dufour, Jean-Marie
  • Khalaf, Lynda

Abstract

This paper proposes exact identification-robust confidence sets for the zero-beta rate and ex-post factor prices in asset pricing models. Exploiting the information from the cross-sectional intercept allows us to impose or formally test model-consistent restrictions, including those resulting from traded factors in excess of the zero beta-rate or from return spreads. Analytical projection-based solutions for confidence set outcomes are developed. The proposed procedures are extended to the case of missing factors. Empirical and simulation results with traded and non-traded factors show that model-consistent restrictions and elusive factors can materially affect model fit, identification, inference and temporal constancy of pricing influence.

Suggested Citation

  • Beaulieu, Marie-Claude & Dufour, Jean-Marie & Khalaf, Lynda, 2025. "Identification-robust and simultaneous inference in multifactor asset pricing models," Journal of Econometrics, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:econom:v:248:y:2025:i:c:s0304407624002665
    DOI: 10.1016/j.jeconom.2024.105915
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    More about this item

    Keywords

    Linear asset pricing; Traded and non-traded factors; Weak identification; Identification-robust inference; Multivariate linear regression; Exact test;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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