Inference on Risk Premia in Continuous-Time Asset Pricing Models

46 Pages Posted: 17 Sep 2020

See all articles by Yacine Ait-Sahalia

Yacine Ait-Sahalia

Princeton University - Department of Economics

Jean Jacod

Université Paris VI Pierre et Marie Curie

Dacheng Xiu

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2020

Abstract

We develop and implement asymptotic theory to conduct inference on continuous-time asset pricing models using individual equity returns sampled at high frequencies over an increasing time horizon. We study the identification and estimation of risk premia for the continuous and jump components of risks. Our result generalize the Fama-MacBeth two-pass regression approach from the classical discrete-time factor setting to a continuous-time factor model with general dynamics for the factors, idiosyncratic components and factor loadings, while accounting for the fact that the inputs of the second-pass regression are themselves estimated in the first pass.

Keywords: Two-pass regression, cross-section of expected returns, arbitrage pricing theory, high frequency data, long horizon, semimartingales

Suggested Citation

Ait-Sahalia, Yacine and Jacod, Jean and Xiu, Dacheng, Inference on Risk Premia in Continuous-Time Asset Pricing Models (September 14, 2020). Chicago Booth Research Paper No. 20-30, Available at SSRN: https://ssrn.com/abstract=3692604 or http://dx.doi.org/10.2139/ssrn.3692604

Yacine Ait-Sahalia

Princeton University - Department of Economics ( email )

Fisher Hall
Princeton, NJ 08544
United States
609-258-4015 (Phone)
609-258-5398 (Fax)

Jean Jacod

Université Paris VI Pierre et Marie Curie ( email )

4, Place Jussieu, B.P. 169
Laboratoire de Probabilites
F-75252-Paris Cedex 05
France
01 44 27 53 21 (Phone)

Dacheng Xiu (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
163
Abstract Views
802
rank
244,153
PlumX Metrics