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On the properties of the constrained Hansen–Jagannathan distance
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Gospodinov, Nikolay, Kan, Raymond and Robotti, Cesare (2016) On the properties of the constrained Hansen–Jagannathan distance. Journal of Empirical Finance, 36 . pp. 121-150. doi:10.1016/j.jempfin.2015.10.001 ISSN 0927-5398.
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Official URL: https://doi.org/10.1016/j.jempfin.2015.10.001
Abstract
We provide an in-depth analysis of the theoretical properties of the Hansen–Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. Under a multivariate elliptical distribution assumption, we present explicit expressions for the HJ-distance with a no-arbitrage constraint, the associated Lagrange multipliers, and the stochastic discount factor (SDF) parameters in the case of linear SDFs. This allows us to analyze the benefits and costs of using the HJ-distance with a no-arbitrage constraint to evaluate and rank models. We also study the asymptotic and finite-sample properties of the sample constrained HJ-distance. Finally, we demonstrate the practical relevance of our theoretical findings in an empirical illustration of some popular asset-pricing models.
Item Type: | Journal Article | ||||||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Capital assets pricing model, Investments -- Econometric models, Investment analysis, Arbitrage | ||||||||||||
Journal or Publication Title: | Journal of Empirical Finance | ||||||||||||
Publisher: | Elsevier | ||||||||||||
ISSN: | 0927-5398 | ||||||||||||
Official Date: | 1 March 2016 | ||||||||||||
Dates: |
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Volume: | 36 | ||||||||||||
Page Range: | pp. 121-150 | ||||||||||||
DOI: | 10.1016/j.jempfin.2015.10.001 | ||||||||||||
Status: | Peer Reviewed | ||||||||||||
Publication Status: | Published | ||||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||||
Date of first compliant deposit: | 9 July 2018 | ||||||||||||
RIOXX Funder/Project Grant: |
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