Notes to SAS Users
"Liquidity Biases in Asset Pricing Tests"
Elena N. Asparouhova, Hendrik (Hank) Bessembinder and Ivalina Kalcheva, Journal of Financial Economics (JFE), forthcoming.
If using SAS, WLS estimates can be obtained by use of the WEIGHT statement in PROC REG, with the weighting variable identified as the prior period gross (one plus) return. For more details about the WEIGHT statement: http://www.ats.ucla.edu/stat/sas/library/SASReg_mf.htm
In particular, if the variable RET is the simple rate of return, then in SAS:
l1grossret= 1 + lag1(ret);
proc reg outest =name1 data = name2; by period;
model exret = somevariable; weight l1grossret;
