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Empirical Dynamic Asset Pricing:
Model Specification and Econometric Assessment
Kenneth J. Singleton

Book Description | Reviews
Chapter 1 [in PDF format] | Chapter 2 [PDF only] | Chapter 3 [PDF only]

TABLE OF CONTENTS:

Preface xi Acknowledgments xiii

Chapter 1: Introduction 1

1.1. Model Implied Restrictions 3
1.2. Econometric Estimation Strategies 10

Part I: Econometric Methods for Analyzing DAPMs 15

Chapter 2: Model Specification and Estimation Strategies 17

2.1. Full Information about Distributions 17
2.2. No Information about the Distribution 21
2.3. Limited Information: GMM Estimators 25
2.4. Summary of Estimators 34

Chapter 3: Large-Sample Properties of Extremum Estimators 35

3.1. Basic Probability Model 35
3.2. Consistency: General Considerations 39
3.3. Consistency of Extremum Estimators 44
3.4. Asymptotic Normality of Extremum Estimators 48
3.5. Distributions of Specific Estimators 53
3.6. Relative Efficiency of Estimators 60

Chapter 4: Goodness-of-Fit and Hypothesis Testing 71

4.1. GMM Tests of Goodness-of-Fit 71
4.2. Testing Restrictions on ? 0 77
4.3. Comparing LR, Wald, and LM Tests 84
4.4. Inference for Sequential Estimators 86
4.5. Inference with Unequal-Length Samples 88
4.6. Underidentified Parameters under H 0 94

Chapter 5: Affine Processes 98

5.1. Affine Processes: Overview 100
5.2. Continuous-Time Affine Processes 101
5.3. Discrete-Time Affine Processes 108
5.4. Transforms for Affine Processes 114
5.5. GMM Estimation of Affine Processes 117
5.6. ML Estimation of Affine Processes 118
5.7. Characteristic Function-Based Estimators 124

Chapter 6: Simulation-Based Estimators of DAPMs 130

6.1. Introduction 130
6.2. SME: The Estimation Problem 132
6.3. Consistency of the SME 135
6.4. Asymptotic Normality of the SME 142
6.5. Extensions of the SME 144
6.6. Moment Selection with SME 146
6.7. Applications of SME to Diffusion Models 152
6.8. Markov Chain Monte Carlo Estimation 153

Chapter 7: Stochastic Volatility, Jumps, and Asset Returns 158

7.1. Preliminary Observations about Shape 159
7.2. Discrete-Time Models 164
7.3. Estimation of Discrete-Time Models 171
7.4. Continuous-Time Models 174
7.5. Estimation of Continuous-Time Models 179
7.6. Volatility Scaling 185
7.7. Term Structures of Conditional Skewness and Kurtosis 187

Part II: Pricing Kernels, Preferences, and DAPMs 193

Chapter 8: Pricing Kernels and DAPMs 195

8.1. Pricing Kernels 195
8.2. Marginal Rates of Substitution as q *198
8.3. No-Arbitrage and Risk-Neutral Pricing 202

Chapter 9: Linear Asset Pricing Models 211

9.1. Economic Motivations for Examining Asset Return Predictability 211
9.2. Market Microstructure Effects 214
9.3. A Digression on Unit Roots in Time Series 219
9.4. Tests for Serial Correlation in Returns 224
9.5. Evidence on Stock-Return Predictability 231
9.6. Time-Varying Expected Returns on Bonds 237

Chapter 10: Consumption-Based DAPMs 246

10.1. Empirical Challenges Facing DAPMs 247
10.2. Assessing Goodness-of-Fit 251
10.3. Time-Separable Single-Good Models 254
10.4. Models with Durable Goods 260
10.5. Habit Formation 265
10.6. Non-State-Separable Preferences 274
10.7. Other Preference-Based Models 276
10.8. Bounds on the Volatility of m nt 277

Chapter 11: Pricing Kernels and Factor Models 282

11.1. A Single-Beta Representation of Returns 283
11.2. Beta Representations of Excess Returns 285
11.3. Conditioning Down and Beta Relations 287
11.4. From Pricing Kernels to Factor Models 290
11.5. Methods for Testing Beta Models 297
11.6. Empirical Analyses of Factor Models 302

Part III: No-Arbitrage DAPMs 309

Chapter 12: Models of the Term Structure of Bond Yields 311

12.1. Key Ingredients of a DTSM 312
12.2. Affine Term Structure Models 316
12.3. Continuous-Time Affine DTSMs 317
12.4. Discrete-Time Affine DSTMs 327
12.5. Quadratic-Gaussian Models 329
12.6. NonAffine Stochastic Volatility Models 331
12.7. Bond Pricing with Jumps 332
12.8. DTSMs with Regime Shifts 334

Chapter 13: Empirical Analyses of Dynamic Term Structure Models 338

13.1. Estimation of DTSMs 338
13.2. Empirical Challenges for DTSMs 344
13.3. DTSMs of Swap and Treasury Yields 348
13.4. Factor Interpretations in Affine DTSMs 356
13.5. Macroeconomic Factors and DTSMs 359

Chapter 14: Term Structures of Corporate Bond Spreads 364

14.1. DTSMs of Defaultable Bonds 364
14.2. Parametric Reduced-Form Models 369
14.3. Parametric Structural Models 371
14.4. Empirical Studies of Corporate Bonds 373
14.5. Modeling Interest Rate Swap Spreads 383
14.6. Pricing Credit Default Swaps 384
14.7. Is Default Risk Priced? 387

Chapter 15: Equity Option Pricing Models 391

15.1. No-Arbitrage Option Pricing Models 392
15.2. Option Pricing 396
15.3. Estimation of Option Pricing Models 397
15.4. Econometric Analysis of Option Prices 401
15.5. Options and Revealed Preferences 404
15.6. Options on Individual Common Stocks 410

Chapter 16: Pricing Fixed-Income Derivatives 412

16.1. Pricing with Affine DTSMs 413
16.2. Pricing Using Forward-Rate Models 417
16.3. Risk Factors and Derivatives Pricing 425
16.4. Affine Models of Derivatives Prices 428
16.5. Forward-Rate-Based Pricing Models 429
16.6. On Model-Basing Hedging 431
16.7. Pricing Eurodollar Futures Options 433

References 435
Index 465

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File created: 11/11/2014

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