tidyfinance (version 0.4.3)

estimate_fama_macbeth: Estimate Fama-MacBeth Regressions

Description

This function estimates Fama-MacBeth regressions by first running cross-sectional regressions for each time period and then aggregating the results over time to obtain average risk premia and corresponding t-statistics.

Usage

estimate_fama_macbeth(
  data,
  model,
  vcov = "newey-west",
  vcov_options = NULL,
  data_options = NULL
)

Value

A data frame with the estimated risk premiums, the number of observations, standard errors, and t-statistics for each factor in the model.

Arguments

data

A data frame containing the data for the regression. It must include a column representing the time periods (defaults to date) and the variables specified in the model.

model

A formula representing the regression model to be estimated in each cross-section.

vcov

A character string indicating the type of standard errors to compute. Options are "iid" for independent and identically distributed errors or "newey-west" for Newey-West standard errors. Default is "newey-west".

vcov_options

A list of additional arguments to be passed to the NeweyWest() function when vcov = "newey-west". These can include options such as lag, which specifies the number of lags to use in the Newey-West covariance matrix estimation, and prewhite, which indicates whether to apply a prewhitening transformation. Default is an empty list.

data_options

A named list of data_options with characters, indicating the column names required to run this function. The required column names identify dates. Defaults to date = date.

Examples

set.seed(1234)

data <- tibble::tibble(
  date = rep(seq.Date(from = as.Date("2020-01-01"),
                      to = as.Date("2020-12-01"), by = "month"), each = 50),
  permno = rep(1:50, times = 12),
  ret_excess = rnorm(600, 0, 0.1),
  beta = rnorm(600, 1, 0.2),
  bm = rnorm(600, 0.5, 0.1),
  log_mktcap = rnorm(600, 10, 1)
)

estimate_fama_macbeth(data, "ret_excess ~ beta + bm + log_mktcap")
estimate_fama_macbeth(data, "ret_excess ~ beta + bm + log_mktcap", vcov = "iid")
estimate_fama_macbeth(data, "ret_excess ~ beta + bm + log_mktcap",
                      vcov = "newey-west", vcov_options = list(lag = 6, prewhite = FALSE))

# Use different column name for date
data |>
  dplyr::rename(month = date) |>
  estimate_fama_macbeth(
    "ret_excess ~ beta + bm + log_mktcap",
    data_options = data_options(date = "month")
 )