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Evaluating a non-linear asset pricing model on international data

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  • Asgharian, Hossein
  • Karlsson, Sonnie

Abstract

The paper analyses the ability of a non-linear asset pricing model suggested by Dittmar [Dittmar, R.F., 2002. Non-linear pricing kernels, kurtosis preference, and the cross-section of equity returns. Journal of Finance 57, 369-403] to explain the returns on international value and growth portfolios. For comparison we use competing pricing models such as the ICAPM, the exchange rate risk augmented ICAPM and the international two-factor model proposed by Fama and French [Fama, E.F., French, K. R., 1998. Value versus growth: The international evidence. Journal of Finance 53, 1975-1999]. All models are evaluated both unconditionally and conditionally. The models are evaluated by applying the Hansen and Jagannathan distance measure, and we also employ several alternative measures to ensure a robust comparison of the models. We find support for the model of Dittmar [Dittmar, R.F., 2002. Non-linear pricing kernels, kurtosis preference, and the cross-section of equity returns. Journal of Finance 57, 369-403]. Evaluated conditionally, this model successfully passes all the different diagnostic tests performed in the analysis.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 17 (2008)
Issue (Month): 3 (June)
Pages: 604-621

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Handle: RePEc:eee:finana:v:17:y:2008:i:3:p:604-621

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Web page: http://www.elsevier.com/locate/inca/620166

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Cited by:
  1. Erdos, Péter & Ormos, Mihály & Zibriczky, Dávid, 2011. "Non-parametric and semi-parametric asset pricing," Economic Modelling, Elsevier, vol. 28(3), pages 1150-1162, May.

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