Estimation and Evaluation of Conditional Asset Pricing Models / Stefan Nagel, Kenneth J. Singleton.

Format:

Book

Author/Creator:

Nagel, Stefan.

Contributor:

National Bureau of Economic Research.

Singleton, Kenneth J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16457.

NBER working paper series no. w16457

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We find that several recently proposed consumption-based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model-implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal GMM estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors. Further, for the (often relevant) case where a researcher is proposing a generalized SDF relative to some null model, we show that there is an optimal choice of managed portfolios to use in testing the null against the proposed alternative.

Notes:

Print version record

October 2010.