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Chi-squared tests for evaluation and comparison of asset pricing models

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  • Gospodinov, Nikolay
  • Kan, Raymond
  • Robotti, Cesare

Abstract

This paper presents a general statistical framework for estimation, testing and comparison of asset pricing models using the unconstrained distance measure of Hansen and Jagannathan (1997). The limiting results cover both linear and nonlinear models that could be correctly specified or misspecified. We propose modified versions of the existing model selection tests and new pivotal specification and model comparison tests with improved finite-sample properties. In addition, we provide formal tests of multiple model comparison. The excellent size and power properties of the proposed tests are demonstrated using simulated data from linear and nonlinear asset pricing models.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 173 (2013)
Issue (Month): 1 ()
Pages: 108-125

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Handle: RePEc:eee:econom:v:173:y:2013:i:1:p:108-125

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Asset pricing models; Hansen–Jagannathan distance; Model selection; Model misspecification;

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References

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Cited by:
  1. Fletcher, Jonathan, 2014. "Benchmark models of expected returns in U.K. portfolio performance: An empirical investigation," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 30-46.

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