Analytical solution for the constrained Hansen-Jagannathan distance under multivariate ellipticity
AbstractWe provide an in-depth analysis of the theoretical properties of the Hansen-Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. Under a multivariate elliptical distribution assumption, we present explicit expressions for the HJ-distance with a no-arbitrage constraint, the associated Lagrange multipliers, and the SDF parameters in the case of linear SDFs. This approach allows us to analyze the benefits and costs of using the HJ-distance with a no-arbitrage constraint to rank asset pricing models.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2012-18.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
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