Information content of the risk-free rate for the pricing kernel bound

Milad Nozari ()
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Milad Nozari: International Center for Finance-Yale School of Management

Journal of Asset Management, 2021, vol. 22, issue 4, No 3, 267-276

Abstract: Abstract We propose a new method to tighten the restrictions on the admissible pricing kernel space. Our framework improves information-based pricing kernel bounds and can be used to test various asset pricing models. This method incorporates higher moments of asset returns and conditional information based on the possible risk-free rate fluctuations. The variation in the risk-free rate is attributed to two possible states of the economy, and the proposed approach identifies these states and improves the pricing kernel bound.

Keywords: Pricing kernel; Divergence measure; Information-theoretic bound (search for similar items in EconPapers)
JEL-codes: C1 C5 G5 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1057/s41260-021-00209-1

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