2011/05/23 by STEFAN NAGEL, Stefan Nagel, Kenneth J. Singleton +1
Economics, Econometrics and Finance · Engineering · Mathematics · #Affine transformation #Capital asset pricing model #Computer science #Construct (python library) #Data mining #Econometrics #Economics #Engineering #Estimator #Financial Markets and Investment Strategies #Generalized method of moments #Mathematics #Monetary Policy and Economic Impact #Null (SQL) #Set (abstract data type) #Statistics #Stochastic discount factor #Stochastic processes and financial applications #Stock (firearms)
paper · doi:10.1111/j.1540-6261.2011.01654.x
published in The Journal of Finance 66(3), 873-909 (Wiley)
openalex publication_date 2011/05/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
ABSTRACT We find that several recently proposed consumption‐based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model‐implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal Generalized Method of Moments (GMM) estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors, and we show that there is an optimal choice of managed portfolios to use in testing a null model against a proposed alternative generalized SDF.