Evaluation of Asset Pricing Models Using Two-Pass Cross-Sectional Regressions

with Raymond Kan, 2012, in Handbook of Computational Finance, Jin-Chuan Duan, James E.
Gentle, Wolfgang Haerdle, eds., Chapter 9, pp. 223-251, Springer. [Paper]. This chapter provides a review of the two-pass cross-sectional regression methodology, which over the years has become the most popular approach for estimating and testing linear asset pricing models. We focus on some of the recent developments of this methodology and highlight the importance of accounting for model misspecification in estimating risk premia and in comparing the performance of competing asset pricing models.