1
$\begingroup$

When doing FM regressions for size groups similar to Lewellen (2015) (open access here), should I obtain the cross sectional rolling return window betas using only the size group? (E.g only use large stocks to estimate the betas that will be used to calculate the expected returns for stocks within this group.) Or should I obtain the cross sectional rolling return window betas using the entire sample? (E.g use all stocks to estimate betas and then calculate the expected return for each stock and then look at the averages of each size group separately.)

References

$\endgroup$

1 Answer 1

1
$\begingroup$

As can be seen in the graphs and tables in Lewellen's paper, the cross sectional out of sample slopes differ for each size group, for each date, and should thus be obtained using only the stocks in the respective size group.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.