Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications Estimation with Mixed Data Frequencies: A Bias-Correction Approach

Estimation with Mixed Data Frequencies: A Bias-Correction Approach

Anisha Ghosh and Oliver Linton
Cemmap Working Paper CWP65/19

We propose a solution to the measurement error problem that plagues the estimation of the relation between the expected return of the stock market and its conditional variance due to the latency of these conditional moments. We use intra-period returns to construct a nonparametric proxy for the latent conditional variance in the first step which is subsequently used as an input in the second step to estimate the parameters characterizing the risk-return tradeoff via a GMM approach. We propose a bias-correction to the standard GMM estimator derived under a double asymptotic framework, wherein the number of intra-period returns, N, as well as the number of low frequency time periods, T , simultaneously go to infinity. Simulation exercises show that the bias-correction is particularly relevant for small values of N which is the case in empirically realistic scenarios. The methodology lends itself to additional applications, such as the empirical evaluation of factor models, wherein the factor betas may be estimated using intra-period returns and the unexplained returns or alphas subsequently recovered at lower frequencies.

More on this topic

Cemmap Working Paper CWP09/22
We compare two approaches to using information about the signs of structural shocks at specific dates within a structural vector autoregression (SVAR): imposing ‘narrative restrictions’ (NR) on the shock signs in an otherwise set-identified SVAR; and casting the information about the shock ...
Cemmap Working Paper CWP07/22
Economists are obsessed with rankings of institutions, journals, or scholars according to the value of some feature of interest.
Cemmap Working Paper CWP05/22
We designed a coaching program that focused on one aspect of teacher quality—teacher-child interactions—that researchers in education and psychology have argued is critical for child development and learning.
Cemmap Working Paper CWP04/22
It is often desired to rank different populations according to the value of some feature of each population. For example, it may be desired to rank neighbourhoods according to some measure of intergenerational mobility or countries according to some measure of academic achievement.
Cemmap Working Paper CWP44/21
We study a dynamic ordered logit model for panel data with fixed effects.