TY  - JOUR
AU  - Jagannathan,Ravi
AU  - Wang,Zhenyu
TI  - Empirical Evaluation of Asset Pricing Models: A Comparison of the SDF and Beta Methods
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8098
PY  - 2001
Y2  - January 2001
UR  - http://www.nber.org/papers/w8098
L1  - http://www.nber.org/papers/w8098.pdf
N1  - Author contact info:
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

Zhenyu Wang
University of Texas at Austin
Tel: 212/854-3783
Fax: 212/316-9180
E-Mail: Zhenyu.Wang@ny.frb.org
AB  - 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.
ER  -