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A stochastic discount factor approach to asset pricing using panel data

  • Araújo, Fabio
  • Issler, João Victor
  • Fernandes, Marcelo

Using the Pricing Equation, in a panel-data framework, we construct a novel consistent estimator of the stochastic discount factor (SDF) mimicking portfolio which relies on the fact that its logarithm is the ìcommon featureîin every asset return of the economy. Our estimator is a simple function of asset returns and does not depend on any parametric function representing preferences, making it suitable for testing di§erent preference speciÖcations or investigating intertemporal substitution puzzles.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 628.

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Date of creation: 01 Nov 2006
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Handle: RePEc:fgv:epgewp:628
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