Testing Linear Asset Pricing Models
Author: Imane Munzer Dabbous
Publisher:
Published: 2007
Total Pages: 122
ISBN-13:
DOWNLOAD EBOOKAll asset pricing models are necessarily error-ridden. While most of them have f ound supporting evidence, all have inevitably been proven inadequate at some emp irical front. It is from this perspective that all asset pricing models must be considered. The present project attempts an exhaustive comparison of a number of linear asse t pricing models. These will be compared based on their ability to price the ass ets available in the US financial market. In particular, the Hansen-Jagannathan (1997) distance measure test will be the criterion by which models will be compa red and contrasted. It will be used repeatedly to draw conclusions as far as the performance of these models across variations involving the frequency of the da ta, and the conditional information. These sensitivity tests will allow for a ra ther comprehensive evaluation of some of the most popular models, also known as the variants of CAPM. The project is organized as follows. Chapter 1 introduces the topic. The next ch apter provides a discussion of the theoretical aspects of the paper including th e stochastic discount factor concept and the derivation of HJ-distance. Chapter 3 describes the asset pricing models to be evaluated and the parameterization of the different models. Chapter 4 discusses the data and documents the empirical results. The last chapter provides the interpretation of the results as well as concluding remarks.