Chi-Squared Tests for Evaluation and Comparison of Asset Pricing Models

Gospodinov, Nikolay; Kan, Raymond; Robotti, Cesare

doi:10.2139/ssrn.1800685

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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

See all articles by Nikolay Gospodinov

Raymond Kan

University of Toronto - Rotman School of Management

Cesare Robotti

Warwick Business School

Date Written: March 21, 2012

Abstract

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

Gospodinov, Nikolay and Kan, Raymond and Robotti, Cesare, Chi-Squared Tests for Evaluation and Comparison of Asset Pricing Models (March 21, 2012). Federal Reserve Bank of Atlanta Working Paper No. 2011-08, Available at SSRN: https://ssrn.com/abstract=1800685 or http://dx.doi.org/10.2139/ssrn.1800685