Evaluating Asset Pricing Models in a Simulated Multifactor Approach

Carlos Carrasco-Gutierrez and Wagner Gaglianone

Brazilian Review of Finance, 2012, vol. 10, issue 4, 425-460

Abstract: In this paper a methodology to compare the performance of different stochastic discount factor (SDF) models is suggested. The starting point is the estimation of several factor models in which the choice of the fundamental factors comes from different procedures. Then, a Monte Carlo simulation is designed in order to simulate a set of gross returns with the objective of mimicking the temporal dependency and the observed covariance across gross returns. Finally, the artificial returns are used to investigate the performance of the competing asset pricing models through the Hansen and Jagannathan (1997) distance and some goodness-of-fit statistics of the pricing error. An empirical application is provided for the U.S. stock market.

Keywords: Asset Pricing; Stochastic Discount Factor; Hansen-Jagannathan distance (search for similar items in EconPapers)
JEL-codes: C15 C22 G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/3849/5842 (application/pdf)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/3849 (text/html)

Related works:
Working Paper: Evaluating Asset Pricing Models in a Simulated Multifactor Approach (2012)
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: https://EconPapers.repec.org/RePEc:brf:journl:v:10:y:2012:i:4:p:425-460

Access Statistics for this article

Brazilian Review of Finance is currently edited by Marcio Laurini

More articles in Brazilian Review of Finance from Brazilian Society of Finance
Bibliographic data for series maintained by Marcio Laurini ().