Estimating and Testing Dynamic Corporate Finance Models

Estimating and Testing Dynamic Corporate Finance Models

We assess the finite sample performance of simulation estimators that are used to estimate the parameters of dynamic corporate finance models. We formulate an external validity specification test and propose a new set of statistical benchmarks that can be used to estimate and evaluate these models....

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Veröffentlicht in:The Review of financial studies 2018-01, Vol.31 (1), p.322-361
Hauptverfasser: Bazdresch, Santiago, Kahn, R. Jay, Whited, Toni M.
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Sprache:eng
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Corporate finance
Monte Carlo simulation
Power
Simulation
Specification
Studies
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creator Bazdresch, Santiago
Kahn, R. Jay
Whited, Toni M.
description We assess the finite sample performance of simulation estimators that are used to estimate the parameters of dynamic corporate finance models. We formulate an external validity specification test and propose a new set of statistical benchmarks that can be used to estimate and evaluate these models. These benchmarks are based on model policy functions. Our Monte Carlo simulations show that the estimators are largely unbiased with low root mean squared errors. When computed with an optimal weight matrix, the specification tests associated with the estimators are close to correctly sized. These tests have excellent power to detect misspecification.
doi_str_mv 10.1093/rfs/hhx080
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source EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current)
subjects Corporate finance
Monte Carlo simulation
Power
Simulation
Specification
Studies
title Estimating and Testing Dynamic Corporate Finance Models
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