Finite sample properties of the generalized method of moments in tests of conditional asset pricing models

Finite-Sample Properties of Some Alternative GMM Estimators

“…and Person and Foerster (1991). These investigators did not study the properties of the continuous-updating estimator, nor did they study the behavior of criterion function-based confidence regions.…”

The Book-to-Market and Size Effects in a General Asset Pricing Model: Evidence from Seven National Markets

“…Technically, the test evaluates the distance between two bounds in returns-variance space (HJ bounds); one bound is constructed from SDFs that include both the reference and the test assets and the other from SDFs that include only the reference assets. 24 If the two bounds are sufficiently close to each other we conclude that the reference assets span or price the test assets.…”

“…The tests of these additional conditioning variables proceed in the same manner as before. None of these 24 The bounds are described by an SDF as the risk-free rate varies. Because the bounds are quadratic, only 2 points on each frontier need to be evaluated to assess if the bounds coincide or not.…”

Conditional Asset Pricing

“…Gibbons and Ferson (1985) argued that the latent variable model is attractive in view of the difficulties associated with measuring the true market portfolio of the CAPM, but Wheatley (1989) emphasized that it remains necessary to assume that ratios of the betas measured with respect to the unobserved market portfolio, are constant parameters. Campbell (1987) and Ferson and Foerster (1994) show that a single-beta latent variable model is rejected by the data. This rejects the hypothesis that there is a conditional minimum-variance portfolio such that the ratios of conditional betas on this portfolio are fixed parameters.…”