TY  - JOUR
A1  - Laurinaityte, Nora
A1  - Meinerding, Christoph
A1  - Schlag, Christian
A1  - Thimme, Julian
T1  - GMM weighting matrices in cross-sectional asset pricing tests
T2  - Journal of banking and finance
N2  - When estimating misspecified linear factor models for the cross-section of expected returns using GMM, the explanatory power of these models can be spuriously high when the estimated factor means are allowed to deviate substantially from the sample averages. In fact, by shifting the weights on the moment conditions, any level of cross-sectional fit can be attained. The mathematically correct global minimum of the GMM objective function can be obtained at a parameter vector that is far from the true parameters of the data-generating process. This property is not restricted to small samples, but rather holds in population. It is a feature of the GMM estimation design and applies to both strong and weak factors, as well as to all types of test assets.
KW  - Asset pricing
KW  - Cross-section of expected returns
Y1  - 2024
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/83436
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-834365
SN  - 0378-4266
VL  - 162
IS  - 107123
PB  - Elsevier
CY  - Amsterdam
ER  -