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Hansen-Jagannathan Bounds as Classical Tests of Asset-Pricing Models

Craig Burnside
Journal of Business & Economic Statistics
Vol. 12, No. 1 (Jan., 1994), pp. 57-79
DOI: 10.2307/1391924
Stable URL: http://www.jstor.org/stable/1391924
Page Count: 23
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Hansen-Jagannathan Bounds as Classical Tests of Asset-Pricing Models
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Abstract

In this article, tests of the implications of consumption-based asset-pricing models are developed. Four of these tests are based on variance bounds for intertemporal marginal rates of substitution introduced by Hansen and Jagannathan. The tests provide one means of quantifying the effects of sampling error when the bounds are used as a diagnostic device. The tests are used to construct confidence regions for the parameters of an asset-pricing model using U.S. data. Monte Carlo simulation is used to determine the small-sample properties of the tests.

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