A unifying approach to the empirical evaluation of asset pricing models

• Autores: Francisco Peñaranda, Enrique Sentana Iváñez
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 4, 2010
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • Two main approaches are commonly used to empirically evaluate linear factor pricing models: regression and SDF methods, with centred and uncentred versions of the latter. We show that unlike standard two-step or iterated GMM procedures, single-step estimators such as continuously updated GMM yield numerically identical values for prices of risk, pricing errors, Jensen�s alphas and overidentifying restrictions tests irrespective of the model validity. Therefore, there is arguably a single approach regardless of the factors being traded or not, or the use of excess or gross returns. We illustrate our results by revisiting Lustig and Verdelhan�s (2007) empirical analysis of currency returns.