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Home | Events Archive | Joint Estimation of Conditional Mean and Covariance for Unbalanced Panels
Seminar

Joint Estimation of Conditional Mean and Covariance for Unbalanced Panels

  • Location
    Erasmus University Rotterdam, Campus Woudestein, ET-14
    Rotterdam
  • Date and time

    March 06, 2025
    12:00 - 13:00

Abstract

We develop a nonparametric, kernel-based joint estimator for conditional mean and covariance matrices in large and unbalanced panels. The estimator is supported by rigorous consistency results and finite-sample guarantees, ensuring its reliability for empirical applications in Finance. We apply it to an extensive panel of monthly US stock excess returns from 1962 to 2021, using macroeconomic and firm-specific covariates as conditioning variables. The estimator effectively captures time-varying cross-sectional dependencies, demonstrating robust statistical and economic performance. We find that idiosyncratic risk explains, on average, more than 75\% of the cross-sectional variance.