IDEAS home Printed from https://ideas.repec.org/p/hhb/aarfin/2000_010.html
   My bibliography  Save this paper

Evaluating the C-CAPM and the Equity Premium Puzzle at Short and Long Horizons: A Markovian Bootstrap Approach

Author

Listed:
  • Engsted, Tom

    (Department of Finance, Aarhus School of Business)

  • Mammen, Enno

    (Institute für Angewandte Mathematik)

  • Tanggaard, Carsten

    (Department of Finance, Aarhus School of Business)

Abstract

We investigate the C-CAPM and the equity premium puzzle using asset returns and consumption data from the US and Denmark. In contrast to previous studies the investigation is carried out with both short and long investment horizons. In addition, we introduce a Markovian bootstrap approach to calculate the finite-sample distributions of the various test statistics used. Among other things, our approach allows testing the hypothesis of no pricing errors based on the Hansen and Jagannathan (1997) specification error measure, which is not possible based on asymptotic approximations. The analysis shows that there are large differences between US and Danish asset markets, and also to some extent differences depending on the length of the investment horizon. In addition, with a long investment horizon, the asymptotic and bootstrap estimated distributions often differ markedly. We also find that althrough the Hansen-Jagannathan specification error measure points to large pricing errors, when we account properly (using the bootstrap approach) for sampling error, there is no evidence against the C-CAPM with CRRA utility in neither the US nor Danish data. However, the bootstrap based tests of a zero-mean risk-adjusted equity premium clearly reject the model on US data.

Suggested Citation

  • Engsted, Tom & Mammen, Enno & Tanggaard, Carsten, 2000. "Evaluating the C-CAPM and the Equity Premium Puzzle at Short and Long Horizons: A Markovian Bootstrap Approach," Finance Working Papers 00-10, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    • Handle: RePEc:hhb:aarfin:2000_010
    as

    Download full text from publisher

    File URL: http://www.hha.dk/fin/finance/RESEARCH/D00_10.PDF
    Download Restriction: no
    ---><---

    Citations

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


    Cited by:

    1. Belter, Klaus & Engsted, Tom & Tanggaard, Carsten, 2005. "A new daily dividend-adjusted index for the Danish stock market, 1985-2002: construction, statistical properties, and return predictability," Research in International Business and Finance, Elsevier, vol. 19(1), pages 53-70, March.
    2. Engsted, Tom, 2002. "Measures of Fit for Rational Expectations Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 301-355, July.
    3. Engsted, Tom & Tanggaard, Carsten, 2001. "The Danish stock and bond markets: comovement, return predictability and variance decomposition," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 243-271, July.
    4. Stuart Hyde & Mohamed Sherif, 2004. "Don't break the habit: structural stability tests of consumption models in the UK," Money Macro and Finance (MMF) Research Group Conference 2003 49, Money Macro and Finance Research Group.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhb:aarfin:2000_010. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Helle Vinbaek Stenholt (email available below). General contact details of provider: https://edirc.repec.org/data/ifhhadk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.