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| Author: | Li, H. Xu, Y. Zhang, X. |
| Title: | Evaluating asset pricing models using the second Hansen-Jagannathan distance |
| Journal: | Journal of Financial Economics
2010 : AUG, VOL 97:2, p. 279-301 |
| Index terms: | model testing arbitrage asset valuation |
| Freeterms: | Hansen-Jagannathan distance |
| Language: | eng |
| Abstract: | In this article, a specification test and a set of model specification procedures are developed for non-nested, overlapping and nested models. The procedures are derived from the second Hansen-Jagannathan distance, and require a functioning and arbitrage-free model for asset pricing. The methods used in the paper are argued to have proper finite sample performances and to outpace the current methods in their power to detect misspecified models. Significantly different conclusions of model performances are reached with the new model compared to existing models, using the Fama and French size and book-to-market portfolios. |
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