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| Author: | Goldenberg, D. H. Schmidt, R. J. |
| Title: | On estimating the expected rate of return in diffusion price models with application to estimating the expected return on the market |
| Journal: | Journal of Financial and Quantitative Analysis
1996 : DEC, VOL. 31:4, p. 605-631 |
| Index terms: | ESTIMATION RATE OF RETURN MODELS PRICES |
| Language: | eng |
| Abstract: | This study estimates the drift coefficient in some popular diffusion price models. Maximum likelihood estimators of the instantaneous drift coefficient were derived and their rates of convergence to the true drift were quantified and numerically simulated. Noting its identity with Merton's estimator (1980) and indicating its essential nonconvergent behavior,The maximum likelihood estimator is derived in the log-normal model. A sensitivy analysis is performed by comparing the properties of the MLE-estimators to those of other non-MLE estimators. The results should be useful in further empirical tests of market efficiency and in the estimation of the drift in diffusion asset price models. |
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