Time series approaches only apply to traded assets. The notes for Week 5b Notes on empirical methods of his course Business 35150 Advanced Investments are also fantastic. The following videos from his video course are pure gold He explains it in detail in his brilliant textbook.
No one is better at explaining asset pricing than John Cochrane. My Question: What exactly is the difference between the results obtained in each of these procedures? I understand methodologically they are quite different, but I am wondering how their estimates of risk premia would differ in practice and why. it represents the return on security $i$.Īssuming we have a single factor model, which then states that: Here $i$ is not an exponent but a superscript, e.g. R_t^i = \alpha_i + \beta^i f_t +\epsilon^i_t \quad (1)
Consider the single factor model in time series form, e.g:
