Séminaire
What is the Consumption-CAPM missing? An Information-Theoretic Framework for the Analysis of Asset Pricing Models
Christian Julliard (London School of Economics)
Paul Woolley Research Initiative Seminar
IDEI, 8 octobre 2012, 12h30–14h00, salle MF 323
Référence
Christian Julliard (London School of Economics), « What is the Consumption-CAPM missing? An Information-Theoretic Framework for the Analysis of Asset Pricing Models », Paul Woolley Research Initiative Seminar, IDEI, 8 octobre 2012, 12h30–14h00, salle MF 323.
Résumé
We study a broad class of asset pricing models in which the stochastic discount factor (SDF) can be factorized into an observable component and a potentially unobservable, model-specific, one. Exploiting this decomposition we derive new entropy bounds that restrict the admissible regions for the SDF and its components. Without using this decomposition, to a second order approximation, entropy bounds are equivalent to the canonical Hansen-Jagannathan bounds. However, bounds based on our decomposition have higher information content,are tighter, and exploit the restriction that the SDF is a positive random variable. Our information-theoretic framework also enables us to extract a non-parametric estimate of the unobservable component of the SDF. Empirically, we find it to have a business cycle pattern, and significant correlations with both financial market crashes unrelated to economy-wide contractions, and the Fama-French factors. We apply our methodology to some leading consumption-based models, gaining new insights about their empirical performance.
Mots-clés
Pricing Kernel; Stochastic Discount Factor; Consumption Based Asset Pricing; Entropy Bounds;
Partenaire de recherche
Paul Woolley Research Initiative