Abstract
This paper address the impact of estimation bias on the use of traditional statistical tests in testing time series asset pricing models. Since we have no ideas about the true risk factors but only use some linear portfolios as their mimicking, these representatives themselves include noise term that will affect the estimation and result in the estimation biases. Due to the fact that traditional statistical tests have no power to check whether the significant correlation comes from useful risk information or useless noise information, they are not robust as the benchmarks for evaluating different asset pricing models. These results are shown in simulations.
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Lin, H. (2008). Critique of Traditional Statistical Tests in Asset Pricing Models. In: Iskander, M. (eds) Innovative Techniques in Instruction Technology, E-learning, E-assessment, and Education. Springer, Dordrecht. https://doi.org/10.1007/978-1-4020-8739-4_30
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DOI: https://doi.org/10.1007/978-1-4020-8739-4_30
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