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The structural Sharpe model under t-distributions

Author

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  • Manuel Galea
  • David Cademartori
  • Filidor Vilca

Abstract

In this paper we consider Sharpe's single-index model or Sharpe's model, by assuming that the returns obtained follow a multivariate t elliptical distribution. Also, given that the returns of the market are not observable, the statistical analysis was made in the context of an errors-in-variables model. In order to analyze the sensibility to possible outliers and/or atypical returns of the maximum likelihood estimators the local influence method [10] was implemented. The results are illustrated by using a set of shares of companies belonging to the Chilean Stock Market. The main conclusion is that the t model with small degrees of freedom is able to incorporate possible outliers and influential returns in the data.

Suggested Citation

  • Manuel Galea & David Cademartori & Filidor Vilca, 2010. "The structural Sharpe model under t-distributions," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(12), pages 1979-1990.
    • Handle: RePEc:taf:japsta:v:37:y:2010:i:12:p:1979-1990
    DOI: 10.1080/02664760903207316
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    Cited by:

    1. Manuel Galea & David Cademartori & Roberto Curci & Alonso Molina, 2020. "Robust Inference in the Capital Asset Pricing Model Using the Multivariate t -distribution," JRFM, MDPI, vol. 13(6), pages 1-22, June.

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