Dear all,
I am currently studying mutual equity fund returns in regard to the four-factor model of Carhart (1997). I have monthly fund and market returns from January-2000 up until now. The basic function is this: Rit-Rft=α+β0i(X1t)+β1i(X2t)+β2i(X3t)+β3i(X4t)+ ϵit.
I would now like to create time-varying betas, meaning the individual betas are a linear regression and dependent on a set (four) of lagged predetermined variables (Zt-1).
This would transform each beta into: βit=β0i + [β1Z(t-1,1) + β2Z(t-1,2) + β3Z(t-1,3) + β4Z(t-1,4)]
This is in line with the research by Otten & Bams (2004), resulting in time-variant betas and increasing the explanatory power of the model.
My Question: I can not find a a command to perform such a regression in Stata. Does anyone have experience with this, or know the answer?
Thanks in advance for all the help, and if you have any further questions then please feel free to ask them.
Sander H.
Otten, R., & Bams, D. (2004). How to measure mutual fund performance: economic versus statistical relevance. Accounting & finance, 44(2), 203-222.
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