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Nonparametric specification testing of conditional asset pricing models

Abstract: This article presents an adaptive omnibus specification test of asset pricing models where the stochastic discount factor is conditionally affine in the pricing factors. These models provide constraints that conditional moments of returns and pricing factors must satisfy, but most of them do not provide information on the functional form of those moments. Our test is robust to functional form misspecification, and also detects any relationship between pricing errors and conditioning variables. We give special emphasis to the test implementation and calibration, and extensive simulation studies prove the functioning in practice. Our empirical applications show a conditional counterpart of a well-known problem of unconditional models. The lack of rejection of consumption based conditional models seems to be due to a poor conditional correlation between consumption and stock returns.

 Autoría: Peñaranda F., Rodríguez-Poo J.M., Sperlich S.,

 Fuente: Journal of Business and Economic Statistics, 2022, 40(4), 1455-1469

Editorial: Taylor & Francis

 Año de publicación: 2022

Nº de páginas: 15

Tipo de publicación: Artículo de Revista

 DOI: 10.1080/07350015.2021.1933500

ISSN: 0735-0015,1537-2707

Proyecto español: PID2019-105986GB-C22

Url de la publicación: https://doi.org/10.1080/07350015.2021.1933500