A Unifying Approach to the Empirical Evaluation of Asset Pricing Models

Francisco Peñaranda and Enrique Sentana

No 488, Working Papers from Barcelona School of Economics

Abstract: Two main approaches are commonly used to empirically evaluate linear factor pricing models: regression and SDF methods, with centred and uncentred versions of the latter. We show that unlike standard two-step or iterated GMM procedures, single-step estimators such as continuously updated GMM yield numerically identical values for prices of risk, pricing errors, Jensen's alphas and overidentifying restrictions tests irrespective of the model validity. Therefore, there is arguably a single approach regardless of the factors being traded or not, or the use of excess or gross returns. We illustrate our results by revisiting Lustig and Verdelhan's (2007).

Keywords: CU-GMM; Factor pricing models; Forward premium puzzle; Generalised Empirical Likelihood; Stochastic discount factor (search for similar items in EconPapers)
JEL-codes: C12 C13 G11 G12 (search for similar items in EconPapers)
Date: 2015-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2015/09/488-file.pdf (application/pdf)

Related works:
Journal Article: A Unifying Approach to the Empirical Evaluation of Asset Pricing Models (2015)
Working Paper: A Unifying Approach to the Empirical Evaluation of Asset Pricing Models (2010)
Working Paper: A Unifying Approach to the Empirical Evaluation of Asset Pricing Models (2010)
Working Paper: A unifying approach to the empirical evaluation of asset pricing models (2010)
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:bge:wpaper:488

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().