Hello guys,

I was recently trying to replicate an approach from Barber, Brad M. and Huang, Xing and Odean, Terrance, Which Factors Matter to Investors? Evidence from Mutual Fund Flows (May 18, 2016).

In that paper the author first run the following regression:
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where F are flows for fund p in month t and MAR p,t−s represents the lagged market-adjusted return for the fund at lag s, where s = 1 to 18 months. X is a matrix of control variables and µt are time-fixed effects.

The authors see that there is a decay in coefficients the more back in time they go. To capture this decay they say that they model "the flow-return relation using an exponential decay model, with decay rate λ":

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"The key parameters of interest in this model are b, which measures the relation between a weighted sum of the previous eighteen monthly market-adjusted returns, and λ, which measures the decay in the return-flow relation over time."

I was a bit unsure how do you estimate λ coefficient as I feel a bit lost at the moment? I believe that they use nl to run a restricted model, but I am not sure.

Would really appreciate any help.