The R-square of the market model is largely employed in finance and accounting studies as a measure of stock price informational efficiency. Individual firms R-squares are usually aggregated at the country-level by using the individual firm total risk over the country total risk as weighting factor. This paper shows how to interpret the country-level R-square as a Chisini mean of the firm-specific R-squares and under what conditions it may be related to the R-square of a Seemingly Unrelated Regression (SUR) model. In particular we show that for the latter a necessary constrain is that returns must be centered on zero, which appears to be in this context not only a common practice but also a methodological assumption.

Bramante, R., Petrella, G., Zappa, D., On the interpretation and estimation of the market model R-square, <<ELECTRONIC JOURNAL OF APPLIED STATISTICAL ANALYSIS>>, 2013; 6 (N/A): 57-66. [doi:10.1285/i20705948v6n1p57] [https://hdl.handle.net/10807/43815]

On the interpretation and estimation of the market model R-square

Bramante, Riccardo;Petrella, Giovanni;Zappa, Diego
2013

Abstract

The R-square of the market model is largely employed in finance and accounting studies as a measure of stock price informational efficiency. Individual firms R-squares are usually aggregated at the country-level by using the individual firm total risk over the country total risk as weighting factor. This paper shows how to interpret the country-level R-square as a Chisini mean of the firm-specific R-squares and under what conditions it may be related to the R-square of a Seemingly Unrelated Regression (SUR) model. In particular we show that for the latter a necessary constrain is that returns must be centered on zero, which appears to be in this context not only a common practice but also a methodological assumption.
2013
Inglese
Bramante, R., Petrella, G., Zappa, D., On the interpretation and estimation of the market model R-square, <<ELECTRONIC JOURNAL OF APPLIED STATISTICAL ANALYSIS>>, 2013; 6 (N/A): 57-66. [doi:10.1285/i20705948v6n1p57] [https://hdl.handle.net/10807/43815]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/43815
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