Two_Pass_Regression {BayesianFactorZoo}

Fama MacBeth Two-Pass Regression

Description

This function provides the frequentist Fama-MacBeth Two-Pass Regression.

Usage

Two_Pass_Regression(f, R)

Arguments

f

A matrix of factors with dimension t \times k, where k is the number of factors and t is the number of periods;

R

A matrix of test assets with dimension t \times N, where t is the number of periods and N is the number of test assets;

Details

See Chapter 12.2 in Cochrane (2009). t_stat and t_stat_gls are t-statistics of OLS and GLS risk premia estimates based on the asymptotic standard errors in equation (12.19) in Cochrane (2009).

Value

The return of Two_Pass_Regression is a list of the following elements:

• lambda: Risk premia estimates in the OLS two-pass regression;

• lambda_gls: Risk premia estimates in the GLS two-pass regression;

• t_stat: The t-statistics of risk premia estimates in the OLS two-pass regression;

• t_stat_gls: The t-statistics of risk premia estimates in the GLS two-pass regression;

• R2_adj: Adjusted R2 in the OLS two-pass regression;

• R2_adj_GLS: Adjusted R2 in the GLS two-pass regression.

References

Cochrane J (2009). Asset pricing: Revised edition. Princeton University Press.