Testing Alpha in High Dimensional Linear Factor Pricing Models with Dependent Observations
Methodology
2024-01-26 v1
Abstract
In this study, we introduce three distinct testing methods for testing alpha in high dimensional linear factor pricing model that deals with dependent data. The first method is a sum-type test procedure, which exhibits high performance when dealing with dense alternatives. The second method is a max-type test procedure, which is particularly effective for sparse alternatives. For a broader range of alternatives, we suggest a Cauchy combination test procedure. This is predicated on the asymptotic independence of the sum-type and max-type test statistics. Both simulation studies and practical data application demonstrate the effectiveness of our proposed methods when handling dependent observations.
Keywords
Cite
@article{arxiv.2401.14052,
title = {Testing Alpha in High Dimensional Linear Factor Pricing Models with Dependent Observations},
author = {Huifang Ma and Long Feng and Zhaojun Wang and Jigang Bao},
journal= {arXiv preprint arXiv:2401.14052},
year = {2024}
}