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A Note on the Use of the Two-Stage Least Squares Estimator in Financial Models

Published online by Cambridge University Press:  19 October 2009

William P. Lloyd
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Extract

Financial or capital market theory is intimately concerned with the concept of a general equilibrium. But most of the empirical work in finance has been concerned with the estimation of single-equation ordinary least squares cross-sectional models. One way of capturing some of the flavor of a general equilibrium is to use a simultaneous equation valuation model. Thus the value or the return on a security can be determined simultaneously in relationship to and in competition with the other securities in the system. Simkowitz and Jones [4] have recently described how the methodology could be used. Simkowitz and Logue [5] have recently performed a study using this methodology.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 1 , March 1975 , pp. 143 - 149
Copyright
Copyright © School of Business Administration, University of Washington 1975

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References

REFERENCES

[1]Cragg, J. G. “On the Relative Small-sample Properties of Several Structural-equation Estimators.” Econometrica, January 1967, pp. 89–110.CrossRefGoogle Scholar
[2]Dhrymes, Phoebus J.Econometrics Statistical Foundations and Applications. New York: Harper & Row., Publishers, 1970.Google Scholar
[3]Goldberger, Arthur S.Econometric Theory. New York: John Wiley & Sons, Inc., 1964.Google Scholar
[4]Simkowitz, Michael A., and Jones, Charles P.. “A Note on the Simultaneous Nature of Finance Methodology.” Journal of Finance, March 1972, pp. 103–108.CrossRefGoogle Scholar
[5]Simkowitz, Michael A., and Logue, Dennis E.. “The Interdependent Structure of Security Returns.” Journal of Financial and Quantitative Analysis, March 1973, pp. 259–272.CrossRefGoogle Scholar
[6]Summers, R. “A Capital Intensive Approach to the Small Sample Properties of Various Simultaneous Equation Estimators.” Econometrica, January 1965, pp. 1–41.CrossRefGoogle Scholar
[7]Theil, Henry. Principles of Econometrics. New York: John Wiley & Sons, Inc., 1971.Google Scholar