Empirical Evaluation of Asset Pricing Models: A Comparison of the SDF and Beta Methods
(377 K)
|
NBER Working Paper No. 8098
Issued in January 2001
NBER Program(s): AP
The stochastic discount factor (SDF) method provides a unified general framework for econometric analysis of asset pricing models. It has recently been pointed out that the generality of the SDF method may come at the cost of estimation efficiency. We show that there is no need for this concern. The SDF method is as efficient as the classical beta method for estimating risk premia. In addition, the SDF method has an advantage -- the classical beta method, unlike the SDF method, substantially understates the effect of sampling errors when the estimated unanticipated changes in macroeconomic variables are used as pervasive factors.
Published: Jagannathan, Ravi and Zhenyu Wang. "Empirical Evaluation Of Asset-Pricing Models: A Comparison Of The SDF And Beta Methods," Journal of Finance, 2002, v57(5,Oct), 2337-2367.
This paper is available as PDF (377 K) or via email.
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
|
|
|
About
Support
The research activities of the NBER are funded by grants from federal research agencies, by private foundations, and by generous donations from our corporate associates and from private individuals. The NBER is a non-profit, 501(c)(3) organization. For information on supporting the NBER, please contact:
Mr. Denis Healy, Director of Development
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138-5398
ph: 617-868-3900
email: dhealy@nber.org
Close
