Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance

Wayne Ferson ()

No 9441, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Three concepts: stochastic discount factors, multi-beta pricing and mean variance efficiency, are at the core of modern empirical asset pricing. This paper reviews these paradigms and the relations among them, concentrating on conditional asset pricing models where lagged variables serve as instruments for publicly available information. The different paradigms are associated with different empirical methods. We review the variance bounds of Hansen and Jagannathan (1991), concentrating on extensions for conditioning information. Hansen's (1982) Generalized Method of Moments (GMM) is briefly reviewed as an organizing principle. Then, cross-sectional regression approaches as developed by Fama and MacBeth (1973) are reviewed and used to interpret empirical factors, such as those advocated by Fama and French (1993, 1996). Finally, we review the multivariate regression approach, popularized in the finance literature by Gibbons (1982) and others. A regression approach, with a beta pricing formulation, and a GMM approach with a stochastic discount factor formulation, may be considered competing paradigms for empirical work in asset pricing. This discussion clarifies the relations between the various approaches. Finally, we bring the models and methods together, with a review of the recent conditional performance evaluation literature, concentrating on mutual funds and pension funds.

JEL-codes: G00 G11 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-rmg
Note: AP
References: View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published as Constantinides, G.M., M. Harris, and R.M. Stulz. Handbook of the Economics of Finance: Financial Markets and Asset Pricing Volume 1B. North Holland, 2003.

Downloads: (external link)
http://www.nber.org/papers/w9441.pdf (application/pdf)

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:nbr:nberwo:9441

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9441

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().