Testing the boundaries of applicability of standard Stochastic Discount Factor models

IF 6.1 2区 经济学 Q1 BUSINESS, FINANCE
Luca Pezzo , Yinchu Zhu , M. Kabir Hassan , Jiayuan Tian
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引用次数: 0

Abstract

We provide a joint non-parametric test to gather insights on the boundaries of applicability of Stochastic Discount Factor (SDF) models. We find that a non-trivial class of models cannot price the U.S. stock market equally weighted portfolio, implying non-monotonic SDFs, especially over the last 50/60 years in (recessionary) periods characterized by higher market volatility. Stocks responsible for this rejection mostly belong to the smallest NYSE market cap decile, are characterized by high idiosyncratic risk, and typically cannot be priced via SDF models where the aggregate level of risk aversion is bigger then 9 or 10. Excluding these stocks increases the ability to explain the cross-section of returns without impairing the ability to span the mean–variance frontier.

测试标准随机贴现因子模型的适用范围
我们提供了一个联合非参数检验,以深入了解随机贴现因子(SDF)模型的适用范围。我们发现,有一类模型无法对美国股市等权重投资组合进行定价,这意味着非单调 SDF,尤其是在过去 50/60 年市场波动性较大的(衰退)时期。造成这种排斥的股票大多属于纽约证券交易所市值最小的十分位数,具有高特异性风险的特点,通常无法通过风险规避总水平大于 9 或 10 的 SDF 模型进行定价。剔除这些股票可以提高解释收益截面的能力,同时又不影响跨越均值-方差前沿的能力。
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来源期刊
CiteScore
7.70
自引率
9.30%
发文量
78
审稿时长
34 days
期刊介绍: The Journal of Financial Stability provides an international forum for rigorous theoretical and empirical macro and micro economic and financial analysis of the causes, management, resolution and preventions of financial crises, including banking, securities market, payments and currency crises. The primary focus is on applied research that would be useful in affecting public policy with respect to financial stability. Thus, the Journal seeks to promote interaction among researchers, policy-makers and practitioners to identify potential risks to financial stability and develop means for preventing, mitigating or managing these risks both within and across countries.
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