Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2013-03-04 Number: 13-036/III Author-Name: Guorui Bian Author-Workplace-Name: East China Normal University Author-Name: Michael McAleer Author-Workplace-Name: Erasmus University Rotterdam, Kyoto University, Complutense University of Madrid Author-Name: Wing-Keung Wong Author-Workplace-Name: Hong Kong Baptist University Title: Robust Estimation and Forecasting of the Capital Asset Pricing Model Abstract: See the article in the Annals of Financial Economics (2013). Volume 8, issue 2, pages 1-18.

In this paper, we develop a modified maximum likelihood (MML) estimator for the multiple linear regression model with underlying student t distribution. We obtain the closed form of the estimators, derive the asymptotic properties, and demonstrate that the MML estimator is more appropriate for estimating the parameters of the Capital Asset Pricing Model by comparing its performance with least squares estimators (LSE) on the monthly returns of US portfolios. The empirical results reveal that the MML estimators are more efficient than LSE in terms of the relative efficiency of one-step-ahead forecast mean square error in small samples Classification-JEL: C1, C2, G1 Keywords: Maximum likelihood estimators; Modified maximum likelihood estimators; Student t family; Capital asset pricing model; Robustness File-Url: https://papers.tinbergen.nl/13036.pdf File-Format: application/pdf File-Size: 196542 bytes Handle: RePEc:tin:wpaper:20130036