Journal
ECONOMETRICS JOURNAL
Volume 25, Issue 1, Pages 176-214Publisher
OXFORD UNIV PRESS
DOI: 10.1093/ectj/utab018
Keywords
Nonparametric regression; functional dependence measure; risk premium; consumption growth
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Funding
- Asness Junior Faculty Fellowship at the University of Chicago School of Business
- NSF
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This paper introduces a multiplicative nonstationary nonparametric regression model for uncovering the conditional mean function, with applications for estimating pricing equations and risk premium shapes. The model can be seen as a dimension-reduction technique and is particularly useful for small sample sizes.
This paper presents a multiplicative nonstationary nonparametric regression model which allows for a broad class of nonstationary processes. We propose a three-step estimation procedure to uncover the conditional mean function and establish uniform convergence rates and asymptotic normality of our estimators. The new model can also be seen as a dimension-reduction technique for a general two-dimensional time-varying nonparametric regression model, which is especially useful in small samples and for estimating explicitly multiplicative structural models. We consider two applications: estimating a pricing equation for the US aggregate economy to model consumption growth and estimating the shape of the monthly risk premium for S&P 500 Index data.
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