This paper is concerned with testing the time series implications of the capital asset pricing model (CAPM) due to Sharpe (1964) and Lintner (1965), when the number of securities, <em>N</em>, is large relative to the time dimension, <em>T</em>, of the return series. Two new tests of CAPM are proposed that exploit...

This paper proposes the transformed maximum likelihood estimator for short dynamic panel data models with interactive fixed effects, and provides an extension of Hsiao et al. (2002) that allows for a multifactor error structure. This is an important extension since it retains the advantages of...

This paper extends the transformed maximum likelihood approach for estimation of dynamic panel data models by Hsiao, Pesaran, and Tahmiscioglu (2002) to the case where the errors are crosssectionally heteroskedastic. This extension is not trivial due to the incidental parameters problem that...

This paper considers testing the hypothesis that errors in a panel data model are weakly cross sectionally dependent, using the exponent of cross-sectional dependence <img src="http://www.econ.cam.ac.uk/faculty/pesaran/wp12/image3.png" width="11" height="13" />, introduced recently in Bailey, Kapetanios and Pesaran (2012). It is shown that the implicit null of the <em>CD</em> test depends on the...

This paper argues in favour of a closer link between decision and forecast evaluation problems. Although the idea of using decision theory for forecast evaluation appears early in the dynamic stochastic programming literature, and has continued to be used in meteorological forecasts, it is...

This paper provides a review of the literature on unit roots and cointegration in panels where the time dimension (T), and the cross section dimension (N) are relatively large. It distinguishes between the first generation tests developed on the assumption of the cross section independence, and...

The authors demonstrate the conditions under which the bivariate probit model can be considered a special case of the more general multinomial probit model. Since the attendant parameter restrictions produce a singular covariance matrix, the subsequent problems of testing on the boundary of the...

This paper extends the cross sectionally augmented panel unit root test proposed by Pesaran (2007) to the case of a multifactor error structure. The basic idea is to exploit information regarding the unobserved factors that are shared by other time series in addition to the variable under...

This paper is concerned with tests in multivariate time series models made up of random walk (with drift) and stationary components. When the stationary component is white noise, a Lagrange multiplier test of the hypothesis that the covariance matrix of the disturbances driving the multivariate...

This note describes the matching procedure used to construct panel data sets from the 1987, 1989 and 1991 Hungarian Household Budget servey samples.