Evaluating asset pricing models using the second Hansen-Jagannathan distance

• 成果类型: Article
• 署名作者: Li, Haitao; Xu, Yuewu; Zhang, Xiaoyan
• 署名单位: Fordham University; University of Michigan System; University of Michigan; Cornell University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2010.03.002
• 发表日期: 2010
• 页码: 279-301
• 关键词: Stochastic discount factor; specification test; model selection; Hansen-Jagannathan distance; arbitrage

摘要

We develop a specification test and a sequence of model selection procedures for non-nested, overlapping, and nested models based on the second Hansen-Jagannathan distance, which requires a good asset pricing model to not only have small pricing errors but also be arbitrage free. Our methods have reasonably good finite sample performances and are more powerful than existing ones in detecting misspecified models with small pricing errors but are not arbitrage-free and in differentiating models that have similar pricing errors of a given set of test assets. Using the Fama and French size and book-to-market portfolios, we reach dramatically different conclusions on model performances based on our approach and existing methods. (C) 2010 Elsevier B.V. All rights reserved.