2021/11/11 by Weidong Tian, Tian, Weidong
Economics, Econometrics and Finance · #FOS: Economics and business #Theoretical Economics (econ.TH) #econ.TH
paper · pdf · doi:10.48550/arxiv.2111.06238
42 pages
arxiv created 2021/11/11 · arxiv updated 2021/11/12
This paper demonstrates the additive and multiplicative version of a long-run law of unexpected shocks for any economic variable. We derive these long-run laws by the martingale theory without relying on the stationary and ergodic conditions. We apply these long-run laws to asset return, risk-adjusted asset return, and the pricing kernel process and derive new asset pricing implications. Moreover, we introduce several dynamic long-term measures on the pricing kernel process, which relies on the sample data of asset return. Finally, we use these long-term measures to diagnose leading asset pricing models.