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Media type:
E-Article
Title:
Evaluating Asset-Pricing Models Using the Hansen-Jagannathan Bound: A Monte Carlo Investigation
Contributor:
Otrok, Christopher;
Ravikumar, B.;
Whiteman, Charles H.
Published:
John Wiley & Sons, 2002
Published in:
Journal of Applied Econometrics, 17 (2002) 2, Seite 149-174
Language:
English
ISSN:
0883-7252;
1099-1255
Origination:
Footnote:
Description:
<p>We use recent statistical tests, based on a 'distance' between the model and the Hansen-Jagannathan bound, to compute the rejection rates of true models. For asset-pricing models with time-separable preferences, the finite-sample distribution of the test statistic associated with the risk-neutral case is extreme, in the sense that critical values based on this distribution deliver type I errors no larger than intended-regardless of risk aversion or the rate of time preference. We also show that these maximal-type-I-error critical values are appropriate for both time and state non-separable preferences and that they yield acceptably small type II error rates.</p>