Assessing Misspecified Asset Pricing Models with Empirical Likelihood Estimators

Caio Almeida, René Garcia: Hansen and Jagannathan (1997) compare misspecified asset pricing models based on least-square projections on a family of admissible stochastic discount factors.

Author(s):

Caio Almeida

Graduate School of EconomicsGetulio Vargas Foundation

Rene Garcia

EDHEC Business School

We extend their fundamental contribution by considering Minimum Discrepancy projections where misspecification is measured by a family of convex functions that take into account higher moments of asset returns. The Minimum Discrepancy problems are solved on dual spaces producing a family of estimators that captures the least-square problem as a particular case. We derive the asymptotic distributions of the estimators for the Cressie Read family of discrepancies, and illustrate their use with an assessment of the Consumption Asset Pricing Model.
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Assessing Misspecified Asset Pricing Models with Empirical Likelihood Estimators...
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Type: Working paper
Date: le 02/05/2011
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

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