A stochastic discount factor approach to asset pricing using panel data asymptotics

Resumo

Using the Pricing Equation in a panel-data framework, we construct a novel consistent estimator of the stochastic discount factor (SDF) which relies on the fact that its logarithm is the 'common feature' in every asset return of the economy. Our estimator is a simple function of asset returns and does not depend on any parametric function representing preferences. The techniques discussed in this paper were applied to two relevant issues in macroeconomics and finance: the first asks what type of parametric preference-representation could be validated by asset-return data, and the second asks whether or not our SDF estimator can price returns in an out-of-sample forecasting exercise. In formal testing, we cannot reject standard preference specifications used in the macro/finance literature. Estimates of the relative risk-aversion coefficient are between 1 and 2, and statistically equal to unity. We also show that our SDF proxy can price reasonably well the returns of stocks with a higher capitalization level, whereas it shows some difficulty in pricing stocks with a lower level of capitalization.

Ficha do documento

Tipo

Estudo

Ano

2011

Instituição

Fundação Getulio Vargas. Escola de Pós-graduação em Economia

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Não informado

Identificador

oai:repositorio.fgv.br:10438/8234

Temas

Economia

Palavras-chave

Stochastic discount factorNo arbitrageCommon featuresPanel data econometricsEconomiaAnálise estocásticaAtivos (Contabilidade)