Minimal Dynamic Equilibria

18 Pages Posted: 28 Mar 2018 Last revised: 1 Jul 2021

See all articles by David Feldman

David Feldman

Banking and Finance, UNSW Business School, UNSW Sydney; Financial Research Network (FIRN)

Dietmar Leisen

Johannes Gutenberg University Mainz - Department of Banking

Date Written: June 1, 2021

Abstract

We define dynamic models as multiperiod models with no static representations and demonstrate that current prevalent asset pricing empirical implementations are inconsistent with dynamic equilibria. Specifically, empirical implementations are misspecified with respect to three essential asset pricing questions (TEQ): dependency on higher moments, complexity of risk premia, and mean-variance efficiency of the “market portfolio” (ability to proxy pricing kernels/SDFs). While we already know that “Merton” models, and their derivatives, differ from static models in all TEQ, we show that this is the case even the “minimal” dynamic equilibria.

Keywords: Minimal, Dynamic, Equilibrium, Higher Moments, Risk Premium, Pricing Kernel, SDF

JEL Classification: G12, G11

Suggested Citation

Feldman, David and Leisen, Dietmar P. J., Minimal Dynamic Equilibria (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=3146670 or http://dx.doi.org/10.2139/ssrn.3146670

David Feldman (Contact Author)

Banking and Finance, UNSW Business School, UNSW Sydney ( email )

UNSW Sydney, NSW 2052
Australia
+61 2 9385 5748 (Phone)
+61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Dietmar P. J. Leisen

Johannes Gutenberg University Mainz - Department of Banking ( email )

Jakob-Welder-Weg 9
Mainz, D-55099
Germany
++49-6131-39 22097 (Phone)
++49-6131-39 23971 (Fax)

HOME PAGE: http://www.finserv.bwl.uni-mainz.de/index_ENG.php

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