A Unifying Approach to the Empirical Evaluation of Asset Pricing Models
Two main approaches are commonly used to empirically evaluate linear factor pricing models: regression and SDF methods, with centred and uncentred versions of the latter. We show that unlike standard two-step or iterated GMM procedures, single-step estimators such as continuously updated GMM yield numerically identical values for prices of risk, pricing errors, Jensens alphas and overidentifying restrictions tests irrespective of the model validity. Therefore, there is arguably a single approach regardless of the factors being traded or not, or the use of excess or gross returns. We illustrate our results by revisiting Lustig and Verdelhans (2007).
|Date of creation:||Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +34 93 542-1222
Fax: +34 93 542-1223
Web page: http://www.barcelonagse.eu
More information through EDIRC
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.:
- Christian Julliard & Anisha Ghosh, 2012.
"Can Rare Events Explain the Equity Premium Puzzle?,"
Review of Financial Studies,
Society for Financial Studies, vol. 25(10), pages 3037-3076.
- Anisha Ghosh & Christian Julliard, 2008. "Can Rare Events Explain the Equity Premium Puzzle?," FMG Discussion Papers dp610, Financial Markets Group.
- Ghosh, Anisha & Julliard, Christian, 2012. "Can Rare Events Explain the Equity Premium Puzzle?," CEPR Discussion Papers 8899, C.E.P.R. Discussion Papers.
- Anisha Ghosh & Christian Julliard, 2008. "Can Rare Events Explain the Equity Premium Puzzle?," 2008 Meeting Papers 1090, Society for Economic Dynamics.
- Owen, Joel & Rabinovitch, Ramon, 1983. " On the Class of Elliptical Distributions and Their Applications to the Theory of Portfolio Choice," Journal of Finance, American Finance Association, vol. 38(3), pages 745-52, June.
- Robert M. De Jong & James Davidson, 2000. "Consistency of Kernel Estimators of Heteroscedastic and Autocorrelated Covariance Matrices," Econometrica, Econometric Society, vol. 68(2), pages 407-424, March.
- Jonathan Lewellen & Stefan Nagel & Jay Shanken, 2006.
"A Skeptical Appraisal of Asset-Pricing Tests,"
NBER Working Papers
12360, National Bureau of Economic Research, Inc.
- Hanno Lustig & Adrien Verdelhan, 2004. "The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk," 2004 Meeting Papers 136c, Society for Economic Dynamics.
- Peñaranda, Francisco & Sentana, Enrique, 2012.
"Spanning tests in return and stochastic discount factor mean–variance frontiers: A unifying approach,"
Journal of Econometrics,
Elsevier, vol. 170(2), pages 303-324.
- Francisco Peñaranda & Enrique Sentana, 2004. "Spanning Tests In Return And Stochastic Discount Factor Mean-Variance Frontiers: A Unifying Approach," Working Papers wp2004_0410, CEMFI.
- Peñaranda, Francisco & Sentana, Enrique, 2004. "Spanning Tests in Return and Stochastic Discount Factor Mean Variance Frontiers: A Unifying Approach," CEPR Discussion Papers 4422, C.E.P.R. Discussion Papers.
- Enrique Sentana & Francisco Penaranda, 2004. "Spanning Tests in Return and Stochastic Discount Factor Mean-Variance Frontiers: A Unifying Approach," FMG Discussion Papers dp497, Financial Markets Group.
- Francisco Peñaranda & Enrique Sentana, 2008. "Spanning tests in return and stochastic discount factor mean-variance frontiers: A unifying approach," Economics Working Papers 1101, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
- Motohiro Yogo, 2006. "A Consumption-Based Explanation of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 61(2), pages 539-580, 04.
- Antoine, Bertille & Bonnal, Helene & Renault, Eric, 2007.
"On the efficient use of the informational content of estimating equations: Implied probabilities and Euclidean empirical likelihood,"
Journal of Econometrics,
Elsevier, vol. 138(2), pages 461-487, June.
- Hélène Bonnal & Éric Renault, 2004. "On the Efficient Use of the Informational Content of Estimating Equations: Implied Probabilities and Euclidean Empirical Likelihood," CIRANO Working Papers 2004s-18, CIRANO.
- Kan, Raymond & Robotti, Cesare, 2008.
"Specification tests of asset pricing models using excess returns,"
Journal of Empirical Finance,
Elsevier, vol. 15(5), pages 816-838, December.
- Raymond Kan & Cesare Robotti, 2006. "Specification tests of asset pricing models using excess returns," Working Paper 2006-10, Federal Reserve Bank of Atlanta.
When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:488. 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: (Bruno Guallar)
If references are entirely missing, you can add them using this form.