Chi-Squared Tests for Evaluation and Comparison of Asset Pricing Models
Federal Reserve Bank of Atlanta Working Paper No. 2011-08
48 Pages Posted: 2 Apr 2011 Last revised: 4 Jul 2014
Date Written: March 21, 2012
This paper presents a general statistical framework for estimation, testing and comparison of asset pricing models using the unconstrained distance measure of Hansen and Jagannathan (1997). The limiting results cover both linear and nonlinear models that could be correctly specified or misspecified. We propose modified versions of the existing model selection tests and new pivotal specification and model comparison tests with improved finite-sample properties. In addition, we fill an important gap in the literature by providing formal tests of multiple model comparison.
Keywords: asset pricing models, Hansen-Jagannathan distance, model selection, model misspecification
JEL Classification: C12, C13, G12
Suggested Citation: Suggested Citation