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IAS QUANTITATIVE FINANCE & FINTECH SEMINAR SERIES
Inference on Risk Prices without a Fully Specified Factor Model
Prof Dacheng Xiu, Associate Professor of Econometrics and Statistics, University of Chicago
Date : 20 Sep 2016 (Tuesday)
Time : 3:00 - 4:30 pm
Venue : IAS Lecture Theater, Lo Ka Chung Building, Lee Shau Kee Campus, HKUST

Abstract

The speaker proposes a new method to estimate the risk premium of observable factors in a linear asset pricing model, which is valid even when the observed factors are just a subset of the true factors that drive asset prices. If some of the factors of the true model cannot be observed, standard methods yield biased estimates for the risk prices of observed factors due to omitted variable bias. His approach marries principal component analysis with two-pass cross-sectional regressions to extract the priced latent factors from a large panel of testing assets, and use them to infer the risk price of the observable factors. In addition to correcting for omitted factors, the methodology accounts for potential measurement errors in the observed factor, and detects when such a factor is spurious or even useless. The methodology exploits the power of large cross-sections, and he therefore applies it to a large panel of equity portfolios to estimate risk prices for several workhorse linear models.

 

About the speaker

Prof Dacheng Xiu received his MA and PhD in Applied Mathematics from Princeton University in 2008 and 2011 respectively. He then joined the University of Chicago and is currently an Associate Professor of Econometrics and Statistics.

Prof Xiu’s research focuses on Financial Econometrics, Nonparametric Statistics, High-Dimensional Statistics, Empirical Asset, Pricing, and Quantitative Finance. His publications appeared in peer-reviewed journals such as Journal of the American Statistical Association, Journal of Econometrics, Journal of Business & Economic Statistics, etc.

For attendees’ attention

 

 

The lecture is free and open to all. Seating is on a first come, first served basis.

 

 

HKUST Jockey Club Institute for Advanced Study
Enquiries: ias@ust.hk / 2358 5912
http://ias.ust.hk

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