Leitura do Dia - Empirical Likelihood Estimators for Stochastic Discount Factors

Empirical Likelihood Estimators for Stochastic Discount Factors

Caio Almeida
Getulio Vargas Foundation

René Garcia
Edhec Business School


December 23, 2008


Abstract:
Hansen and Jagannathan (HJ, 1991) provided bounds on the volatility of Stochastic Discount Factors (SDF) that proved extremely useful to diagnose and test asset pricing models. This nonparametric bound reflects a duality between the mean-standard deviation frontier for SDFs and the mean-variance frontier for portfolios of asset returns. We extend this fundamental contribution by proposing information bounds that minimize general convex functions of SDFs directly taking into account higher moments of returns. These Minimum Discrepancy bounds reflect a duality with finding the optimal portfolio of asset returns with a general HARA utility function. The maximum utility portfolio implies SDF estimators that are based on implied probabilities associated with the class of Generalized Empirical Likelihood estimators. We analyze the implications of these information bounds for the pricing of size portfolios and the performance evaluation of hedge funds.

Keywords: Stochastic Discount Factor, Information-Theoretic Bounds, Generalized Minimum Contrast Estimators, Implicit Utility Maximizing Weights

JEL Classifications: C1, C5, G1
Working Paper Series

A pessoa que eu mais admiro no campo de finanças aqui no Brasil é o Caio Ibsen. Um belíssimo trabalho, interessante, avançado e muito útil. Trabalho que provavelmente deve abrir uma nova área de pesquisa, que é a maior distinção que um artigo acadêmico pode ter.