Meng, Ginger and Hu, Gang and Bai, Jushan (2007): Olive: a simple method for estimating betas when factors are measured with error. Published in: The Journal of Financial Research , Vol. XXXIV, No. 1 (2011): pp. 2760.

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Abstract
We propose a simple and intuitive method for estimating betas when factors are measured with error: ordinary least squares instrumental variable estimator (OLIVE). OLIVE performs well when the number of instruments becomes large, while the performance of conventional instrumental variable methods becomes poor or even infeasible. In an empirical application, OLIVE beta estimates improve Rsquared significantly. More importantly, our results help resolve two puzzling findings in the prior literature: first, the sign of average risk premium on the beta for market return changes from negative to positive; second, the estimated value of average zerobeta rate is no longer too high.
Item Type:  MPRA Paper 

Original Title:  Olive: a simple method for estimating betas when factors are measured with error. 
Language:  English 
Keywords:  betas, factor analysis, GMM, FIML, measurement error 
Subjects:  G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing; Trading volume; Bond Interest Rates G  Financial Economics > G1  General Financial Markets > G10  General C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models; Multiple Variables > C33  Models with Panel Data; Longitudinal Data; Spatial Time Series 
Item ID:  33183 
Depositing User:  Jushan Bai 
Date Deposited:  07. Nov 2011 01:32 
Last Modified:  12. Feb 2013 08:54 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/33183 