Chi-squared tests for evaluation and comparison of asset pricing models |
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Authors: | Nikolay Gospodinov Raymond Kan Cesare Robotti |
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Affiliation: | 1. Department of Economics, Concordia University, 1455 de Maisonneuve Blvd. West, Montreal, Quebec H3G 1M8, Canada;2. CIREQ, Canada;3. Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario M5S 3E6, Canada;4. Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St., Atlanta, GA 30309, United States;5. EDHEC Risk Institute, France |
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Abstract: | This paper presents a general statistical framework for estimation, testing and comparison of asset pricing models using the unconstrained distance measure of Hansen and Jagannathan (1997). The limiting results cover both linear and nonlinear models that could be correctly specified or misspecified. We propose modified versions of the existing model selection tests and new pivotal specification and model comparison tests with improved finite-sample properties. In addition, we provide formal tests of multiple model comparison. The excellent size and power properties of the proposed tests are demonstrated using simulated data from linear and nonlinear asset pricing models. |
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Keywords: | C12 C13 G12 |
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