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Assessing misspecified asset pricing models with empirical likelihood estimators

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  • Almeida, Caio
  • Garcia, René

Abstract

Hansen and Jagannathan (1997) compare misspecified asset pricing models based on least-square projections on a family of admissible stochastic discount factors. We extend their fundamental contribution by considering Minimum Discrepancy projections where misspecification is measured by a family of convex functions that take into account higher moments of asset returns. The Minimum Discrepancy problems are solved on dual spaces producing a family of estimators that captures the least-square problem as a particular case. We derive the asymptotic distributions of the estimators for the Cressie–Read family of discrepancies, and illustrate their use with an assessment of the Consumption Asset Pricing Model.

Suggested Citation

  • Almeida, Caio & Garcia, René, 2012. "Assessing misspecified asset pricing models with empirical likelihood estimators," Journal of Econometrics, Elsevier, vol. 170(2), pages 519-537.
    • Handle: RePEc:eee:econom:v:170:y:2012:i:2:p:519-537
    DOI: 10.1016/j.jeconom.2012.05.020
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    More about this item

    Keywords

    Stochastic discount factor; Euler equations; Generalized minimum contrast estimators; Model misspecification; Cressie–Read discrepancies;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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