EconPapers    
Economics at your fingertips  
 

Nonparametric Stochastic Discount Factor Decomposition

Timothy M. Christensen

Econometrica, 2017, vol. 85, 1501-1536

Abstract: Stochastic discount factor (SDF) processes in dynamic economies admit a permanent‐transitory decomposition in which the permanent component characterizes pricing over long investment horizons. This paper introduces an empirical framework to analyze the permanent‐transitory decomposition of SDF processes. Specifically, we show how to estimate nonparametrically the solution to the Perron–Frobenius eigenfunction problem of Hansen and Scheinkman, 2009. Our empirical framework allows researchers to (i) construct time series of the estimated permanent and transitory components and (ii) estimate the yield and the change of measure which characterize pricing over long investment horizons. We also introduce nonparametric estimators of the continuation value function in a class of models with recursive preferences by reinterpreting the value function recursion as a nonlinear Perron–Frobenius problem. We establish consistency and convergence rates of the eigenfunction estimators and asymptotic normality of the eigenvalue estimator and estimators of related functionals. As an application, we study an economy where the representative agent is endowed with recursive preferences, allowing for general (nonlinear) consumption and earnings growth dynamics.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://hdl.handle.net/

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:wly:emetrp:v:85:y:2017:i::p:1501-1536

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido W. Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-03-20
Handle: RePEc:wly:emetrp:v:85:y:2017:i::p:1501-1536