Analytical solution for the constrained Hansen-Jagannathan distance under multivariate ellipticity
We provide an in-depth analysis of the theoretical properties of the Hansen-Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. Under a multivariate elliptical distribution assumption, we present explicit expressions for the HJ-distance with a no-arbitrage constraint, the associated Lagrange multipliers, and the SDF parameters in the case of linear SDFs. This approach allows us to analyze the benefits and costs of using the HJ-distance with a no-arbitrage constraint to rank asset pricing models.
|Date of creation:||2012|
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- Bansal, Ravi & Hsieh, David A & Viswanathan, S, 1993. " A New Approach to International Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 48(5), pages 1719-1747, December.
- Raymond Kan & Cesare Robotti, 2008. "The exact distribution of the Hansen-Jagannathan bound," FRB Atlanta Working Paper 2008-09, Federal Reserve Bank of Atlanta. Full references (including those not matched with items on IDEAS)
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