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Econometric evaluation of asset pricing models

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  • Wayne E. Ferson
  • Ravi Jagannathan

Abstract

We provide a brief review of the techniques that are based on the Generalized Method of Moments (GMM) and used for evaluating capital asset pricing models. We first develop the CAPM and multi-beta models and discuss the classical two-stage regression method originally used to evaluate them. We then describe the pricing kernel representation of a generic asset pricing model; this representation facilitates use of the GMM in a natural way for evaluating the conditional and unconditional versions of most asset pricing models. We also discuss diagnostic methods that provide additional insights.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 206.

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Date of creation: 1996
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Handle: RePEc:fip:fedmsr:206

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Keywords: Capital assets pricing model;

References

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Cited by:
  1. Chrétien, Stéphane, 2012. "Bounds on the autocorrelation of admissible stochastic discount factors," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1943-1962.
  2. Wayne E. Ferson & Andrew F. Siegel, 2006. "Testing Portfolio Efficiency with Conditioning Information," NBER Working Papers 12098, National Bureau of Economic Research, Inc.
  3. Wolfgang Drobetz & Susanne Stürmer & Heinz Zimmermann, 2002. "Conditional Asset Pricing in Emerging Stock Markets," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 507-526, December.
  4. Raymond Kan & Cesare Robotti, 2007. "Model comparison using the Hansen-Jagannathan distance," Working Paper 2007-04, Federal Reserve Bank of Atlanta.
  5. Grandes, Martin & Panigo, Demian T. & Pasquini, Ricardo A., 2010. "On the estimation of the cost of equity in Latin America," Emerging Markets Review, Elsevier, vol. 11(4), pages 373-389, December.
  6. Heber Farnsworth & Wayne E. Ferson & David Jackson & Steven Todd, 2002. "Performance Evaluation with Stochastic Discount Factors," NBER Working Papers 8791, National Bureau of Economic Research, Inc.

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