Inference on Risk-Neutral Measures for Incomplete Markets
This paper proposes an econometric framework to estimate market risk prices associated with risk-neutral measures Q under incomplete markets. We show that, under incomplete markets, the market price of risk is not point-identified but is instead identified as a bounded subset of an affine subspace. On the other hand, a structural assumption fully identifies diffusion coefficients for the data-generating probability measure P. We apply Kaido and White's (2008, Discussion Paper, University of California, San Diego) two-stage extension of Chernozhukov, Hong, and Tamer's (2007, Econometrica, 75(5), 1243--1284) partial identification framework to construct a set estimator and confidence regions for the identified set of market risk prices and to test hypotheses. We apply our results to study international risk sharing and risk premiums for market cap range indexes. Copyright The Author 2009. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: firstname.lastname@example.org., Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 7 (2009)
Issue (Month): 3 (Summer)
|Contact details of provider:|| Postal: |
Fax: 01865 267 985
Web page: http://jfec.oxfordjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:7:y:2009:i:3:p:199-246. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.