TY  - JOUR
AU  - Hansen,Lars Peter
AU  - Jagannathan,Ravi
TI  - Assessing Specification Errors in Stochastic Discount Factor Models
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 153
PY  - 1994
Y2  - February 1994
UR  - http://www.nber.org/papers/t0153
L1  - http://www.nber.org/papers/t0153.pdf
N1  - Author contact info:
Lars P. Hansen
Department of Economics
The University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-8170
Fax: 773/702-8490
E-Mail: lhansen@uchicago.edu

Ravi Jagannathan
Kellogg Graduate School of Management
Northwestern University
2001 Sheridan Road
Leverone/Anderson Complex
Evanston, IL 60208-2001
Tel: 847/491-8338
Fax: 847/491-5719
E-Mail: rjaganna@northwestern.edu
AB  - In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly.  Unlike comparisons based on x2 statistics associated with null hypothesis that models are correct, our measures of model performance do not reward variability of discount factor proxies.  One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims.  We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.
ER  -