Choose model

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tyrael
Posts: 1
Joined: Sun Sep 21, 2014 10:03 am

Choose model

Postby tyrael » Sun Sep 21, 2014 10:25 am

Hello,es

I'm currently estimating three models : CAPM ,Fama French 3 and Cahart 4. Then, I'm using a wald test to choose the best model for my data.
This is the 3 equations :
CAPM (R − RF) = B1 + B2(RMKT − RF)
C1 ( P-value > 0.05)
C2 ( P-value < 0.05)
R-Squared 85.55951%


Fama french 3 (R − RF) = B1 + B2(RMKT − RF) + B3*smb+ B4 *hml
C1,C3,C4 ( P-value > 0.05)
C2 ( P-value < 0.05)
R-Squared : 87.0369%

Cahar 4 (R − RF) = (R − RF) = B1 + B2(RMKT − RF) + B3*smb+ B4 *hml + B5*Mom
C1,C3,C4 ( P-value > 0.05)
C2,C5 ( P-value < 0.05)
R-Squared : 87.9806%

My three wald test are :
Test H0 : B2=0 B3=0 H1: not Ho
Test H0 : B2=0 B3=0 B4=0 H1: not Ho
Test H0 : B5=0 H1: not Ho

I can reject each null hypothesis that coefficient does not add explanation. In Wald test T-Statistics <0.05.
I have all this data, but I'm not sure how to choose model. I think I will choose cahart 4 because we can reject each time the null hypothesis when we compare each model together.

Thanks very much for the help.

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