Assessing Specification Errors in Stochastic Discount Factor Models

Lars Peter Hansen and Ravi Jagannathan

No 153, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on x2 statistics associated with null hypothesis that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1994-02
Note: AP
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/t0153.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Assessing specification errors in stochastic discount factor models (1994)
Journal Article: Assessing Specification Errors in Stochastic Discount Factor Models (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberte:0153

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/t0153
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Technical Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().