American Finance Association Assessing Specification Errors in Stochastic Discount Factor Models

  title={American Finance Association Assessing Specification Errors in Stochastic Discount Factor Models},
  author={Lars Peter Hansen and Ravi Jagannathan},
In this article we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on x2 statistics associated with null hypotheses that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate… CONTINUE READING
Highly Influential
This paper has highly influenced 15 other papers. REVIEW HIGHLY INFLUENTIAL CITATIONS
Highly Cited
This paper has 82 citations. REVIEW CITATIONS
65 Citations
27 References
Similar Papers


Publications citing this paper.
Showing 1-10 of 65 extracted citations

82 Citations

Citations per Year
Semantic Scholar estimates that this publication has 82 citations based on the available data.

See our FAQ for additional information.


Publications referenced by this paper.
Showing 1-10 of 27 references

The spirit of capitalism and stock market prices, The American Economic Review, Forthcoming

  • Bakshi, S Gurdip, Zhiwu Chen
  • 1997

Asset pricing in economies with frictions

  • Luttmer, J ErzoG.
  • 1994

Rossi , 1990 , Posterior , predictive , and utilitybased approaches to testing the arbitrage pricing theory

  • E. Peter
  • Journal of Financial Economics
  • 1994

A new approach to international arbitrage pricing

  • Bansal, Ravi, David A. Hsieh, S. Viswanathan
  • Journal of Finance
  • 1993

The valuation problem in arbitrage price theory

  • Clark, A Stephen
  • Journal of Mathematical Economics
  • 1993

A cross-sectional test of a production-based asset pricing model, Working paper, NBER

  • Cochrane, H John
  • 1992
1 Excerpt

Asset pricing explorations for macroeconomics, in NBER Macroeconomics

  • Cochrane, H John, Lars P. Hansen
  • 1992

Similar Papers

Loading similar papers…