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Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates

Publication ,  Journal Article
McElroy, MB; Burmeister, E
Published in: Journal of Business and Economic Statistics
January 1, 1988

By replacing the unknown random factors of factor analysis with observed macroeconomic variables, the arbitrage pricing theory (APT) is recast as a multivariate nonlinear regression model with across-equation restrictions. An explicit theoretical justification for the inclusion of an arbitrary, well-diversified market index is given. Using monthly returns on 70 stocks, iterated nonlinear seemingly unrelated regression techniques are employed to obtain joint estimates of asset sensitivities and their associated APT risk “prices.” Without the assumption oi normally distributed errors, these estimators are strongly consistent and asymptotically normal. With the additional assumption of normal errors, they are also full-information maximum likelihood estimators. Classical asymptotic nonlinear nested hypothesis tests are supportive of the APT with measured macroeconomic factors. © 1988 American Statistical Association.

Duke Scholars

Published In

Journal of Business and Economic Statistics

DOI

EISSN

1537-2707

ISSN

0735-0015

Publication Date

January 1, 1988

Volume

6

Issue

1

Start / End Page

29 / 42

Related Subject Headings

  • Econometrics
  • 49 Mathematical sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics
  • 01 Mathematical Sciences
 

Citation

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McElroy, M. B., & Burmeister, E. (1988). Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates. Journal of Business and Economic Statistics, 6(1), 29–42. https://doi.org/10.1080/07350015.1988.10509634
McElroy, M. B., and E. Burmeister. “Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates.” Journal of Business and Economic Statistics 6, no. 1 (January 1, 1988): 29–42. https://doi.org/10.1080/07350015.1988.10509634.
McElroy MB, Burmeister E. Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates. Journal of Business and Economic Statistics. 1988 Jan 1;6(1):29–42.
McElroy, M. B., and E. Burmeister. “Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates.” Journal of Business and Economic Statistics, vol. 6, no. 1, Jan. 1988, pp. 29–42. Scopus, doi:10.1080/07350015.1988.10509634.
McElroy MB, Burmeister E. Arbitrage pricing theory as a restricted nonlinear multivariate regression model: Iterated nonlinear seemingly unrelated regression estimates. Journal of Business and Economic Statistics. 1988 Jan 1;6(1):29–42.

Published In

Journal of Business and Economic Statistics

DOI

EISSN

1537-2707

ISSN

0735-0015

Publication Date

January 1, 1988

Volume

6

Issue

1

Start / End Page

29 / 42

Related Subject Headings

  • Econometrics
  • 49 Mathematical sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics
  • 01 Mathematical Sciences