Advanced Search
MyIDEAS: Login to save this article or follow this journal

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

Contents:

Author Info

  • 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0304407612002485
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

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

as in new window
Handle: RePEc:eee:econom:v:173:y:2013:i:1:p:108-125

Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom

Related research

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

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Sydney Ludvigson & Xiaohong Chen, 2004. "Land of Addicts? An Empirical Investigation of Habit-Based Asset Pricing Models," 2004 Meeting Papers 692, Society for Economic Dynamics.
  2. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
  3. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
  4. Jonathan A. Parker & Christian Julliard, 2004. "Consumption Risk and the Cross-Section of Expected Returns," Working Papers 138, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  5. Martin Lettau & Sydney Ludvigson, 1999. "Resurrecting the (C)CAPM: a cross-sectional test when risk premia are time-varying," Staff Reports 93, Federal Reserve Bank of New York.
  6. Li, Haitao & Xu, Yuewu & Zhang, Xiaoyan, 2010. "Evaluating asset pricing models using the second Hansen-Jagannathan distance," Journal of Financial Economics, Elsevier, vol. 97(2), pages 279-301, August.
  7. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March.
  8. Wolak, Frank A., 1989. "Testing inequality constraints in linear econometric models," Journal of Econometrics, Elsevier, vol. 41(2), pages 205-235, June.
  9. Guido W. Imbens & Phillip Johnson & Richard H. Spady, 1995. "Information Theoretic Approaches to Inference in Moment Condition Models," Harvard Institute of Economic Research Working Papers 1736, Harvard - Institute of Economic Research.
  10. Nikolay Gospodinov & Raymond Kan & Cesare Robotti, 2010. "Further results on the limiting distribution of GMM sample moment conditions," Working Paper 2010-11, Federal Reserve Bank of Atlanta.
  11. Raymond Kan & Cesare Robotti, 2009. "Model Comparison Using the Hansen-Jagannathan Distance," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3449-3490, September.
  12. Stefan Nagel & Kenneth J. Singleton, 2010. "Estimation and Evaluation of Conditional Asset Pricing Models," NBER Working Papers 16457, National Bureau of Economic Research, Inc.
  13. Donald W. K. Andrews & Gustavo Soares, 2010. "Inference for Parameters Defined by Moment Inequalities Using Generalized Moment Selection," Econometrica, Econometric Society, vol. 78(1), pages 119-157, 01.
  14. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
  15. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  16. Almeida, Caio & Garcia, René, 2012. "Assessing misspecified asset pricing models with empirical likelihood estimators," Journal of Econometrics, Elsevier, vol. 170(2), pages 519-537.
  17. Chen, Xiaohong & Hong, Han & Shum, Matthew, 2007. "Nonparametric likelihood ratio model selection tests between parametric likelihood and moment condition models," Journal of Econometrics, Elsevier, vol. 141(1), pages 109-140, November.
  18. Lars Peter Hansen & John Heaton & Erzo Luttmer, 1993. "Econometric Evaluation of Asset Pricing Models," NBER Technical Working Papers 0145, National Bureau of Economic Research, Inc.
  19. Kan, Raymond & Zhang, Chu, 1999. "GMM tests of stochastic discount factor models with useless factors," Journal of Financial Economics, Elsevier, vol. 54(1), pages 103-127, October.
  20. Raymond Kan & Cesare Robotti, 2006. "Specification tests of asset pricing models using excess returns," Working Paper 2006-10, Federal Reserve Bank of Atlanta.
  21. Smith, Richard J, 1997. "Alternative Semi-parametric Likelihood Approaches to Generalised Method of Moments Estimation," Economic Journal, Royal Economic Society, vol. 107(441), pages 503-19, March.
  22. Hall, Alastair R. & Pelletier, Denis, 2011. "Nonnested Testing In Models Estimated Via Generalized Method Of Moments," Econometric Theory, Cambridge University Press, vol. 27(02), pages 443-456, April.
  23. Sowell, Fallaw, 1996. "Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework," Econometrica, Econometric Society, vol. 64(5), pages 1085-1107, September.
  24. Hansen, Peter Reinhard, 2005. "A Test for Superior Predictive Ability," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 365-380, October.
  25. Massimiliano Marcellino & Barbara Rossi, 2008. "Model Selection for Nested and Overlapping Nonlinear, Dynamic and Possibly Mis-specified Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 867-893, December.
  26. Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
  27. Lien, Donald & Vuong, Quang H., 1987. "Selecting the best linear regression model : A classical approach," Journal of Econometrics, Elsevier, vol. 35(1), pages 3-23, May.
  28. Hansen, Lars Peter & Jagannathan, Ravi, 1997. " Assessing Specification Errors in Stochastic Discount Factor Models," Journal of Finance, American Finance Association, vol. 52(2), pages 557-90, June.
  29. Ahn, Seung C. & Gadarowski, Christopher, 2004. "Small sample properties of the GMM specification test based on the Hansen-Jagannathan distance," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 109-132, January.
  30. R. Golden, 2003. "Discrepancy Risk Model Selection Test theory for comparing possibly misspecified or nonnested models," Psychometrika, Springer, vol. 68(2), pages 229-249, June.
  31. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
  32. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  33. Nikolay Gospodinov & Raymond Kan & Cesare Robotti, 2010. "On the Hansen-Jagannathan distance with a no-arbitrage constraint," Working Paper 2010-04, Federal Reserve Bank of Atlanta.
  34. Motohiro Yogo, 2006. "A Consumption-Based Explanation of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 61(2), pages 539-580, 04.
  35. Brown, David P & Gibbons, Michael R, 1985. " A Simple Econometric Approach for Utility-based Asset Pricing Models," Journal of Finance, American Finance Association, vol. 40(2), pages 359-81, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

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.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:173:y:2013:i:1:p:108-125. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.