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Econometric Evaluation of Asset Pricing Models

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  • Hansen, Lars Peter
  • Heaton, John
  • Luttmer, Erzo G J

Abstract

In this article we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency, and derive the limiting distribution of these estimators. The analysis incorporates market frictions such as short-sale constraints and proportional transactions costs. Among several applications we show how to use the methods to assess specific asset pricing models and to provide nonparametric characterizations of asset pricing anomalies. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 8 (1995)
Issue (Month): 2 ()
Pages: 237-74

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Handle: RePEc:oup:rfinst:v:8:y:1995:i:2:p:237-74

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  1. Luttmer, Erzo G J, 1996. "Asset Pricing in Economies with Frictions," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1439-67, November.
  2. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  3. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(2), pages 225-62, April.
  4. John H. Cochrane & Lars Peter Hansen, 1992. "Asset Pricing Explorations for Macroeconomics," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 115-182 National Bureau of Economic Research, Inc.
  5. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, Elsevier, vol. 47(2-3), pages 197-205, February.
  6. Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1994. " Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 123-52, March.
  7. Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 929-52, July.
  8. Shanken, Jay, 1987. "Multivariate proxies and asset pricing relations : Living with the Roll critique," Journal of Financial Economics, Elsevier, Elsevier, vol. 18(1), pages 91-110, March.
  9. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  10. Prisman, Eliezer Z, 1986. " Valuation of Risky Assets in Arbitrage Free Economies with Frictions," Journal of Finance, American Finance Association, American Finance Association, vol. 41(3), pages 545-57, July.
  11. Hansen, Lars Peter, 1985. "A method for calculating bounds on the asymptotic covariance matrices of generalized method of moments estimators," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 203-238.
  12. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  13. Snow, Karl N, 1991. " Diagnosing Asset Pricing Models Using the Distribution of Asset Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 46(3), pages 955-83, July.
  14. Brown, David P & Gibbons, Michael R, 1985. " A Simple Econometric Approach for Utility-based Asset Pricing Models," Journal of Finance, American Finance Association, American Finance Association, vol. 40(2), pages 359-81, June.
  15. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
  16. Lars Peter Hansen & Ravi Jagannathan, 1994. "Assessing Specification Errors in Stochastic Discount Factor Models," NBER Technical Working Papers 0153, National Bureau of Economic Research, Inc.
  17. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 995-1026, September.
  18. Hua He and David M. Modest., 1992. "Market Frictions and Consumption-Based Asset Pricing," Research Program in Finance Working Papers, University of California at Berkeley RPF-223, University of California at Berkeley.
  19. Pollard, David, 1985. "New Ways to Prove Central Limit Theorems," Econometric Theory, Cambridge University Press, vol. 1(03), pages 295-313, December.
  20. Burnside, Craig, 1994. "Hansen-Jagannathan Bounds as Classical Tests of Asset-Pricing Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(1), pages 57-79, January.
  21. Bansal, Ravi & Hsieh, David A & Viswanathan, S, 1993. " A New Approach to International Arbitrage Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1719-47, December.
  22. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 307-33, March.
  23. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 1027-57, September.
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