NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Simple, Consistent Estimator for Disturbance Components in Financial Models

James A. Levinsohn, Jeffrey K. MacKie-Mason

NBER Technical Working Paper No. 80
Issued in October 1989
NBER Program(s):Monetary Economics

Many recent papers have estimated components of the disturbance term in the "market model" of equity returns. In particular, several studies of regulatory changes and other policy events have decomposed the event effects in order to allow for heterogeneity across firms. In this paper we demonstrate that the econometric method applied in some papers yields biased and inconsistent estimates of the model parameters. We demonstrate the consistency of a simple and easily-implemented alternative method.

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Document Object Identifier (DOI): 10.3386/t0080

Published: The Review of Economics and Statistics, Vol. LXXII, No. 3, pp. 516-520, August 1990.

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