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Evaluating a nonlinear asset pricing model on international data

  • Asgharian, Hossein

    ()

    (Department of Economics, Lund University)

  • Karlsson, Sonnie

    (Danmarks Nationalbank)

The paper analyses the ability of a nonlinear asset pricing model suggested by Dittmar (2002) to explain the returns on international value and growth portfolios. For comparison we use some competing pricing models; such as the ICAPM, the exchange rate risk augmented ICAPM and the international two-factor model proposed by Fama and French (1998). All models are evaluated both unconditionally and conditionally. The models are evaluated by applying the Hansen and Jagannathan distance measure. We also employ several alternative measures to ensure a robust comparison of the models. We find support for the model of Dittmar (2002). Evaluated conditionally, this model successfully passes all the different diagnostic tests performed in the analysis.

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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2006:5.

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Length: 36 pages
Date of creation: 27 Feb 2006
Date of revision:
Publication status: Published as Asgharian, Hossein and Sonnie Karlsson, 'Evaluating a nonlinear asset pricing model on international data' in International Review of Financial Analysis, 2008, pages 604-621.
Handle: RePEc:hhs:lunewp:2006_005
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en

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  1. Ravi Jagannathan & Zhenyu Wang, 1996. "The conditional CAPM and the cross-section of expected returns," Staff Report 208, Federal Reserve Bank of Minneapolis.
  2. Singleton, Kenneth J., 1985. "Testing specifications of economic agents' intertemporal optimum problems in the presence of alternative models," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 391-413.
  3. Lars Peter Hansen & Ravi Jagannathan, 1994. "Assessing specification errors in stochastic discount factor models," Staff Report 167, Federal Reserve Bank of Minneapolis.
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  16. Karolyi, G. Andrew & Stulz, Rene M., 2003. "Are financial assets priced locally or globally?," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 16, pages 975-1020 Elsevier.
  17. Dahlquist, Magnus & Sallstrom, Torbjorn, 2002. "An Evaluation of International Asset Pricing Models," CEPR Discussion Papers 3145, C.E.P.R. Discussion Papers.
  18. Zhang, Xiaoyan, 2006. "Specification tests of international asset pricing models," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 275-307, March.
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