The Exact Distribution of the Hansen-Jagannathan Bound
62 Pages Posted: 21 Dec 2007 Last revised: 1 Apr 2015
Date Written: March 2015
Abstract
Under the assumption of multivariate normality of asset returns, this paper presents a geometric interpretation and the finite-sample distributions of the sample Hansen-Jagannathan bounds on the variance of admissible stochastic discount factors, with and without the nonnegativity constraint on the stochastic discount factors. In addition, since the sample Hansen-Jagannathan bounds can be very volatile, we propose a simple method to construct confidence intervals for the population Hansen-Jagannathan bounds. Finally, we show that the analytical results in the paper are robust to departures from the normality assumption.
Keywords: Hansen-Jagannathan Bound, No Arbitrage, Positivity, Exact Distribution
JEL Classification: G12
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Conditioning Information and Variance Bounds on Pricing Kernels
By Geert Bekaert and Jun Liu
-
Conditioning Information and Variance Bounds on Pricing Kernels
By Geert Bekaert and Jun Liu
-
Stochastic Discount Factor Bounds with Conditioning Information
By Wayne E. Ferson and Andrew F. Siegel
-
Stochastic Discount Factor Bounds with Conditioning Information
By Wayne E. Ferson and Andrew F. Siegel
-
Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance
-
Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models
By Cesare Robotti and Pierluigi Balduzzi
-
Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models
By Pierluigi Balduzzi and Cesare Robotti
-
Mimicking Portfolios with Conditioning Information
By Wayne E. Ferson, Andrew F. Siegel, ...
-
Mimicking Portfolios with Conditioning Information
By Wayne E. Ferson, Andrew F. Siegel, ...