Stochastic Discount Factor Bounds with Conditioning Information
Hansen and Jagannathan (1991) (hereafter HJ) derive restrictions on the volatility of stochastic discount factors that price a given set of returns. This article studies the sampling properties of HJ bounds that use conditioning information. One approach is to multiply the returns by the lagged variables. We also study optimized HJ bounds with conditioning information from Gallant, Hansen, and Tauchen (1990) and based on portfolios derived in Ferson and Siegel (2001). We document striking finite-sample biases in the HJ bounds, where the bounds reject asset-pricing models too often. We provide a useful bias correction. We also evaluate asymptotic standard errors for the bounds from Hansen, Heaton, and Luttmer (1995). Copyright 2003, 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): 16 (2003)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: |
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www4.oup.co.uk/revfin/subinfo/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lars Peter Hansen & Ravi Jagannathan, 1990.
"Implications of security market data for models of dynamic economies,"
Discussion Paper / Institute for Empirical Macroeconomics
29, Federal Reserve Bank of Minneapolis.
- Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-62, April.
- Lars Peter Hansen & Ravi Jagannathan, 1990. "Implications of Security Market Data for Models of Dynamic Economies," NBER Technical Working Papers 0089, National Bureau of Economic Research, Inc.
- Lars Peter Hansen & John Heaton & Erzo Luttmer, 1993.
"Econometric Evaluation of Asset Pricing Models,"
NBER Technical Working Papers
0145, National Bureau of Economic Research, Inc.
- Heber Farnsworth, 2002. "Performance Evaluation with Stochastic Discount Factors," The Journal of Business, University of Chicago Press, vol. 75(3), pages 473-504, July.
- John H. Cochrane & Lars Peter Hansen, 1992.
"Asset Pricing Explorations for Macroeconomics,"
in: NBER Macroeconomics Annual 1992, Volume 7, pages 115-182
National Bureau of Economic Research, Inc.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
- Schwert, G.W. & Seguin, P.J., 1988.
"Heteroskedasticity In Stock Returns,"
bc_88-02, Rochester, Business - General.
- Ferson, Wayne E & Harvey, Campbell R, 1992. " Seasonality and Consumption-Based Asset Pricing," Journal of Finance, American Finance Association, vol. 47(2), pages 511-52, June.
- Shiller, Robert J., 1982.
"Consumption, asset markets and macroeconomic fluctuations,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 17(1), pages 203-238, January.
- Robert J. Shiller, 1982. "Consumption, Asset Markets, and Macroeconomic Fluctuations," NBER Working Papers 0838, National Bureau of Economic Research, Inc.
- Geert Bekaert & Jun Liu, 1999.
"Conditioning Information and Variance Bounds on Pricing Kernels,"
NBER Working Papers
6880, National Bureau of Economic Research, Inc.
- Geert Bekaert, 2004. "Conditioning Information and Variance Bounds on Pricing Kernels," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 339-378.
- Hansen, Lars Peter & Richard, Scott F, 1987. "The Role of Conditioning Information in Deducing Testable," Econometrica, Econometric Society, vol. 55(3), pages 587-613, May.
- MacKinlay, A. Craig, 1987. "On multivariate tests of the CAPM," Journal of Financial Economics, Elsevier, vol. 18(2), pages 341-371, June.
- Gallant, A. Ronald & Hansen, Lars Peter & Tauchen, George, 1990. "Using conditional moments of asset payoffs to infer the volatility of intertemporal marginal rates of substitution," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 141-179.
- Snow, Karl N, 1991. " Diagnosing Asset Pricing Models Using the Distribution of Asset Returns," Journal of Finance, American Finance Association, vol. 46(3), pages 955-83, July.
- Dybvig, Philip H & Ingersoll, Jonathan E, Jr, 1982. "Mean-Variance Theory in Complete Markets," The Journal of Business, University of Chicago Press, vol. 55(2), pages 233-51, April.
- Shanken, Jay, 1987. "Multivariate proxies and asset pricing relations : Living with the Roll critique," Journal of Financial Economics, Elsevier, vol. 18(1), pages 91-110, March.
- Ferson, Wayne E. & Foerster, Stephen R., 1994. "Finite sample properties of the generalized method of moments in tests of conditional asset pricing models," Journal of Financial Economics, Elsevier, vol. 36(1), pages 29-55, August.
- John H. Cochrane, 1992. "A Cross-Sectional Test of a Production-Based Asset Pricing Model," NBER Working Papers 4025, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
- Green, R.C. & Hollifield, B., 1990.
"When Will Mean-Variance Efficient Portfolios Be Well Diversified?,"
GSIA Working Papers
1990-12, Carnegie Mellon University, Tepper School of Business.
- Green, Richard C & Hollifield, Burton, 1992. " When Will Mean-Variance Efficient Portfolios Be Well Diversified?," Journal of Finance, American Finance Association, vol. 47(5), pages 1785-809, December.
- Burnside, Craig, 1994.
"Hansen-Jagannathan Bounds as Classical Tests of Asset-Pricing Models,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 12(1), pages 57-79, January.
- Tom Doan, . "RATS programs to replicate Burnside's JBES 1994 paper on asset pricing," Statistical Software Components RTZ00027, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:16:y:2003:i:2:p:567-595. 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.