Seminar: Paul Schneider - Joint Estimation of Conditional Mean and Covariance for Unbalanced Panels

Speaker: Paul Schneider, EPFL

Time and place: Wednesday, September 10, 11:00, room SPs07, Copenhagen Business School (Solbjerg Pl. 3, 2000 Frederiksberg)

Title: Joint Estimation of Conditional Mean and Covariance for Unbalanced Panels

Abstract We develop a nonparametric, kernel-based joint estimator for conditional mean and covariance matrices in large and unbalanced panels. The estimator is supported by rigorous consistency results and finite-sample guarantees, ensuring its reliability for empirical applications. We apply it to an extensive panel of monthly US stock excess returns from 1962 to 2021, using macroeconomic and firm-specific covariates as conditioning variables. The estimator effectively captures time-varying cross-sectional dependencies, demonstrating robust statistical and economic performance. We find that idiosyncratic risk explains, on average, more than 75% of the cross-sectional variance.

Link to the paper: https://arxiv.org/abs/2410.21858

For a detailed overview of planned future seminars at the Center of Statistics, CBS, see https://www.cbs.dk/en/research/departments-and-centres/department-of-finance/center-statistics/seminars