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Effects of Measurement Errors on Systematic Risk and Performance Measure of a Portfolio

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

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  • Cheng Few Lee
  • Frank C. Jen

Abstract

In this chapter, we first investigate how measurement errors can affect the estimators of CAPM, such as αj and βj. Then, we derive Plimb^ assuming Rm and Rb are measured with error. Finally, we develop an alternative hypothesis testing procedure for the CAPM.

Suggested Citation

  • Cheng Few Lee & Frank C. Jen, 2020. "Effects of Measurement Errors on Systematic Risk and Performance Measure of a Portfolio," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 62, pages 2251-2263, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0062
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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