Bounds on the Autocorrelation of Admissible Stochastic Discount Factors

Abstract

We show how to use asset market data to restrict the admissible region for the first-order autocorrelation of the stochastic discount factor (SDF). We relate this statistic to the importance of the term premium compared to the risk premium prescribed by the SDF. Estimating bounds for nominal and real SDFs at monthly and quarterly frequencies, we find that… (More)

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