An Agnostic and Practically Useful Estimator of the Stochastic Discount Factor

51 Pages Posted: 1 Jan 2020 Last revised: 20 Jul 2020

See all articles by Kuntara Pukthuanthong

Kuntara Pukthuanthong

University of Missouri, Columbia

Richard Roll

California Institute of Technology

Date Written: June 13, 2020

Abstract

We propose an estimator for the stochastic discount factor (SDF) that does not require macroeconomic proxies or preference assumptions. It depends only on observed asset returns, yet is immune to the form of the multivariate return distribution, including the distribution’s factor structure. Using US equity data, our estimator satisfies the Hansen/Jagannathan bounds.

Keywords: stochastic discount factor, pricing kernel, cross-sectional test

JEL Classification: G00

Suggested Citation

Pukthuanthong, Kuntara and Roll, Richard W., An Agnostic and Practically Useful Estimator of the Stochastic Discount Factor (June 13, 2020). Available at SSRN: https://ssrn.com/abstract=3503974 or http://dx.doi.org/10.2139/ssrn.3503974

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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