GROWTH-OPTIMAL PORTFOLIO RESTRICTIONS ON ASSET PRICING MODELS
We show that absence of arbitrage in frictionless markets implies a lower bound on the average of the logarithm of the reciprocal of the stochastic discount factor implicit in asset pricing models. The greatest lower bound for a given asset menu is the average continuously compounded return on its g...
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Veröffentlicht in: | Macroeconomic dynamics 1997, Vol.1 (2), p.333-354 |
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Hauptverfasser: | , |
Format: | Artikel |
Sprache: | eng |
Online-Zugang: | Volltext |
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Zusammenfassung: | We show that absence of arbitrage in frictionless markets
implies a lower bound on the average of the logarithm of the
reciprocal of the stochastic discount factor implicit in
asset pricing models. The greatest lower bound
for a given asset menu is the average continuously compounded return on its
growth-optimal portfolio. We use this bound to evaluate the plausibility of
various parametric asset pricing models to characterize financial market
puzzles such as the equity premium puzzle and the risk-free rate
puzzle. We show that the insights offered by the growth-optimal bounds
differ substantially from those obtained by other
nonparametric bounds. |
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ISSN: | 1365-1005 1469-8056 |
DOI: | 10.1017/S1365100597003039 |