Assessing specification errors in stochastic discount factor models

Lars Hansen and Ravi Jagannathan

No 167, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on chi-squared statistics associated with null hypotheses that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Keywords: capital; asset; pricing; model (search for similar items in EconPapers)
Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.minneapolisfed.org/research/sr/sr167.pdf Full Text (application/pdf)

Related works:
Journal Article: Assessing Specification Errors in Stochastic Discount Factor Models (1997)
Working Paper: Assessing Specification Errors in Stochastic Discount Factor Models (1994)
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:fip:fedmsr:167

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().