Macro‐Finance Decoupling: Robust Evaluations of Macro Asset Pricing Models

Xu Cheng, Winston Dou and Zhipeng Liao

Econometrica, 2022, vol. 90, issue 2, 685-713

Abstract: This paper shows that robust inference under weak identification is important to the evaluation of many influential macro asset pricing models, including (time‐varying) rare‐disaster risk models and long‐run risk models. Building on recent developments in the conditional inference literature, we provide a novel conditional specification test by simulating the critical value conditional on a sufficient statistic. This sufficient statistic can be intuitively interpreted as a measure capturing the macroeconomic information decoupled from the underlying content of asset pricing theories. Macro‐finance decoupling is an effective way to improve the power of the specification test when asset pricing theories are difficult to refute because of a severe imbalance in the information content about the key model parameters between macroeconomic moment restrictions and asset pricing cross‐equation restrictions. We apply the proposed conditional specification test to the evaluation of a time‐varying rare‐disaster risk model and the construction of robust model uncertainty sets.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.3982/ECTA18506

Related works:
Working Paper: Macro-Finance Decoupling: Robust Evaluations of Macro Asset Pricing Models (2020)
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:90:y:2022:i:2:p:685-713

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 ().