Bayesian Estimation of Risk-Premia in an APT Context
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Authors
Darsinos, Theofanis
Satchell, Stephen E.
Abstract
Recognizing the problems of estimation error in computing risk premia via arbitrage pricing, this paper provides a Bayesian methodology for estimating factor risk premia and hence equity risk premia for both traded and non-traded factors. Some illustrative calculations based on UK equity are also provided.
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Keywords
Estimation, Arbitrage Pricing Theory, Risk Premium
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Faculty of Economics