Nonparametric Specification Testing of Conditional Asset Pricing Models

Francisco Peñaranda, Juan M. Rodríguez-Poo and Stefan Sperlich

Journal of Business & Economic Statistics, 2022, vol. 40, issue 4, 1455-1469

Abstract: This article presents an adaptive omnibus specification test of asset pricing models where the stochastic discount factor is conditionally affine in the pricing factors. These models provide constraints that conditional moments of returns and pricing factors must satisfy, but most of them do not provide information on the functional form of those moments. Our test is robust to functional form misspecification, and also detects any relationship between pricing errors and conditioning variables. We give special emphasis to the test implementation and calibration, and extensive simulation studies prove the functioning in practice. Our empirical applications show a conditional counterpart of a well-known problem of unconditional models. The lack of rejection of consumption based conditional models seems to be due to a poor conditional correlation between consumption and stock returns.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/07350015.2021.1933500 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:jnlbes:v:40:y:2022:i:4:p:1455-1469

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/UBES20

DOI: 10.1080/07350015.2021.1933500

Access Statistics for this article

Journal of Business & Economic Statistics is currently edited by Eric Sampson, Rong Chen and Shakeeb Khan

More articles in Journal of Business & Economic Statistics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().