Econometric Evaluation of Asset Pricing Models

REVIEW OF FINANCIAL STUDIES, Vol 8 No 2

Posted: 29 Aug 1998  

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Erzo G. J. Luttmer

University of Minnesota - Twin Cities - Department of Economics

John Heaton

University of Chicago - Finance

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Abstract

In this paper we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency and derive the limiting distribution of these estimators. The analysis incorporates market frictions such as short-sale constraints and proportional transactions costs. Among several applications we show how to use the methods to assess specific asset pricing models and to provide nonparametric characterizations of asset pricing anomalies.

JEL Classification: G12, C13

Suggested Citation

Hansen, Lars Peter and Luttmer, Erzo G. J. and Heaton, John, Econometric Evaluation of Asset Pricing Models. REVIEW OF FINANCIAL STUDIES, Vol 8 No 2. Available at SSRN: https://ssrn.com/abstract=6251

Lars Peter Hansen

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Department of Economics ( email )

1101 E 58th ST
Chicago, IL 60637
United States
773-702-8170 (Phone)
773-702-8490 (Fax)

Erzo G. J. Luttmer

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5054 (Phone)
612-624-0209 (Fax)

HOME PAGE: http://www.econ.umn.edu/~luttmer

John C Heaton (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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