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.

Type: Working paper
Date: le 02/05/2011
Research Cluster : Finance

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