Robust Economic Implications of Nonlinear Pricing Kernels
نویسندگان
چکیده
We derive new bounds and distance measures for stochastic discount factors (SDFs) that generalize the original variance bounds and distance of Hansen and Jagannathan (1991, 1997) and higher moment bounds of Snow (1991). These generalized measures are suitable to analyze nonlinearities in asset pricing models and trading strategies. They imply nonlinear admissible SDFs that provide a more robust discounting than the positive linear SDFs used in many asset pricing empirical applications. We illustrate the empirical usefulness of these new discount factors by revisiting the admissibility of consumption-based asset pricing models, examining the information structure embedded in industry and Fama and French portfolios, and evaluating the performance of hedge funds.
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