Tests of multifactor pricing models, volatility bounds and portfolio performance
Wayne E. Ferson
Chapter 12 in Handbook of the Economics of Finance, 2003, vol. 1, Part 2, pp 743-802 from Elsevier
Three concepts: stochastic discount factors, multi-beta pricing and mean-variance efficiency, are at the core of modern empirical asset pricing. This chapter reviews these paradigms and the relations among them, concentrating on conditional asset-pricing models where lagged variables serve as instruments for publicly available information. The different paradigms are associated with different empirical methods. We review the variance bounds of Hansen and Jagannathan (1991), concentrating on extensions for conditioning information. Hansen's (1982) Generalized Method of Moments (GMM) is briefly reviewed as an organizing principle. Then, cross-sectional regression approaches as developed by Fama and MacBeth (1973) are reviewed and used to interpret empirical factors, such as those advocated by Fama and French, 1993 and Fama and French, 1996 . Finally, we review the multivariate regression approach, popularized in the finance literature by Gibbons (1982) and others. A regression approach, with a beta pricing formulation, and a GMM approach with a stochastic discount factor formulation, may be considered competing paradigms for empirical work in asset pricing. This discussion clarifies the relations between the various approaches. Finally, we bring the models and methods together, with a review of the recent conditional performance evaluation literature, concentrating on mutual funds and pension funds.
JEL-codes: G12 (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
http://www.sciencedirect.com/science/article/B7GX8 ... f7bd9b42f9d8c230b0c3
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:eee:finchp:2-12
Access Statistics for this chapter
More chapters in Handbook of the Economics of Finance from Elsevier
Series data maintained by Shamier, Wendy ().