Assessing Specification Errors in Stochastic Discount Factor Models / Lars Peter Hansen, Ravi Jagannathan.

Format:

Book

Author/Creator:

Hansen, Lars Peter.

Contributor:

National Bureau of Economic Research.

Jagannathan, Ravi.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0153.

NBER technical working paper series no. t0153

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on x2 statistics associated with null hypothesis that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Notes:

Print version record

February 1994.