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

Empirical Dynamic Asset Pricing

Model Specification and Econometric Assessment

Hardcover Published: 6th March 2006
ISBN: 9780691122977
Number Of Pages: 496

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Written by one of the leading experts in the field, this book focuses on the interplay between model specification, data collection, and econometric testing of dynamic asset pricing models. The first several chapters provide an in-depth treatment of the econometric methods used in analyzing financial time-series models. The remainder explores the goodness-of-fit of preference-based and no-arbitrage models of equity returns and the term structure of interest rates; equity and fixed-income derivatives prices; and the prices of defaultable securities.

Singleton addresses the restrictions on the joint distributions of asset returns and other economic variables implied by dynamic asset pricing models, as well as the interplay between model formulation and the choice of econometric estimation strategy. For each pricing problem, he provides a comprehensive overview of the empirical evidence on goodness-of-fit, with tables and graphs that facilitate critical assessment of the current state of the relevant literatures.

As an added feature, Singleton includes throughout the book interesting tidbits of new research. These range from empirical results (not reported elsewhere, or updated from Singleton's previous papers) to new observations about model specification and new econometric methods for testing models. Clear and comprehensive, the book will appeal to researchers at financial institutions as well as advanced students of economics and finance, mathematics, and science.

Industry Reviews

"This book is at the intersection of modern time series and modern asset pricing theory... Ken Singleton gives us the ultimate treatise of empirical asset pricing... [I]t is sure to become a classic work in this field."--Economic Dynamics "This seminal book provides for an in-depth treatment (i) of the various econometric methods used in dynamic asset pricing models, (ii) of pricing kernels, preferences and dynamic asset pricing models and (iii) of no-arbitrage based dynamic asset pricing models. The book contains sixteen chapters and really does provide for much more than an overview of those three broad topics mentioned above."--Emmanuel Haven, Mathematical Reviews "Writing a treatise about empirical asset pricing is as much art as it is science. Professor Singleton intertwines these two dimensions with remarkable skill to provide a critical review of the field... The book accomplishes the goal of great clarity without compromising on the depth of the treatment... The author deserves special praise for encouraging the reader to perceive various compromises involved in financial modeling. The text provides a road map for novices and inspiration for seasoned researchers in the field. As such, it is certain to become a classic of empirical asset pricing."--Anna Cieslak, Financial Markets and Portfolio Management "Writing a treatise about empirical asset pricing is as much art as it is science. Professor Singleton intertwines these two dimensions with remarkable skill to provide a critical review of the field. As such Empirical Dynamic Asset Pricing extends far beyond a textbook treatment of the subject. It gives the reader a unique opportunity to look at dynamic asset pricing models through the eyes of a researcher who has shaped their development during 25 years of his influential work."--Anna Cieslak, Financial Markets and Portfolio Management

Prefacep. xi
Acknowledgmentsp. xiii
Introductionp. 1
Model Implied Restrictionsp. 3
Econometric Estimation Strategiesp. 10
Econometric Methods for Analyzing DAPMsp. 15
Model Specification and Estimation Strategiesp. 17
Full Information about Distributionsp. 17
No Information about the Distributionp. 21
Limited Information: GMM Estimatorsp. 25
Summary of Estimatorsp. 34
Large-Sample Properties of Extremum Estimatorsp. 35
Basic Probability Modelp. 35
Consistency: General Considerationsp. 39
Consistency of Extremum Estimatorsp. 44
Asymptotic Normality of Extremum Estimatorsp. 48
Distributions of Specific Estimatorsp. 53
Relative Efficiency of Estimatorsp. 60
Goodness-of-Fit and Hypothesis Testingp. 71
GMM Tests of Goodness-of-Fitp. 71
Testing Restrictions on [theta subscript 0]p. 77
Comparing LR, Wald, and LM Testsp. 84
Inference for Sequential Estimatorsp. 86
Inference with Unequal-Length Samplesp. 88
Underidentified Parameters under H[subscript 0]p. 94
Affine Processesp. 98
Affine Processes: Overviewp. 100
Continuous-Time Affine Processesp. 101
Discrete-Time Affine Processesp. 108
Transforms for Affine Processesp. 114
GMM Estimation of Affine Processesp. 117
ML Estimation of Affine Processesp. 118
Characteristic Function-Based Estimatorsp. 124
Simulation-Based Estimators of DAPMsp. 130
Introductionp. 130
SME: The Estimation Problemp. 132
Consistency of the SMEp. 135
Asymptotic Normality of the SMEp. 142
Extensions of the SMEp. 144
Moment Selection with SMEp. 146
Applications of SME to Diffusion Modelsp. 152
Markov Chain Monte Carlo Estimationp. 153
Stochastic Volatility, Jumps, and Asset Returnsp. 158
Preliminary Observations about Shapep. 159
Discrete-Time Modelsp. 164
Estimation of Discrete-Time Modelsp. 171
Continuous-Time Modelsp. 174
Estimation of Continuous-Time Modelsp. 179
Volatility Scalingp. 185
Term Structures of Conditional Skewness and Kurtosisp. 187
Pricing Kernels, Preferences, and DAPMsp. 193
Pricing Kernels and DAPMsp. 195
Pricing Kernelsp. 195
Marginal Rates of Substitution as q*p. 198
No-Arbitrage and Risk-Neutral Pricingp. 202
Linear Asset Pricing Modelsp. 211
Economic Motivations for Examining Asset Return Predictabilityp. 211
Market Microstructure Effectsp. 214
A Digression on Unit Roots in Time Seriesp. 219
Tests for Serial Correlation in Returnsp. 224
Evidence on Stock-Return Predictabilityp. 231
Time-Varying Expected Returns on Bondsp. 237
Consumption-Based DAPMsp. 246
Empirical Challenges Facing DAPMsp. 247
Assessing Goodness-of-Fitp. 251
Time-Separable Single-Good Modelsp. 254
Models with Durable Goodsp. 260
Habit Formationp. 265
Non-State-Separable Preferencesp. 274
Other Preference-Based Modelsp. 276
Bounds on the Volatility of m[superscript n subscript t]p. 277
Pricing Kernels and Factor Modelsp. 282
A Single-Beta Representation of Returnsp. 283
Beta Representations of Excess Returnsp. 285
Conditioning Down and Beta Relationsp. 287
From Pricing Kernels to Factor Modelsp. 290
Methods for Testing Beta Modelsp. 297
Empirical Analyses of Factor Modelsp. 302
No-Arbitrage DAPMsp. 309
Models of the Term Structure of Bond Yieldsp. 311
Key Ingredients of a DTSMp. 312
Affine Term Structure Modelsp. 316
Continuous-Time Affine DTSMsp. 317
Discrete-Time Affine DSTMsp. 327
Quadratic-Gaussian Modelsp. 329
Nonaffine Stochastic Volatility Modelsp. 331
Bond Pricing with Jumpsp. 332
DTSMs with Regime Shiftsp. 334
Empirical Analyses of Dynamic Term Structure Modelsp. 338
Estimation of DTSMsp. 338
Empirical Challenges for DTSMsp. 344
DTSMs of Swap and Treasury Yieldsp. 348
Factor Interpretations in Affine DTSMsp. 356
Macroeconomic Factors and DTSMsp. 359
Term Structures of Corporate Bond Spreadsp. 364
DTSMs of Defaultable Bondsp. 364
Parametric Reduced-Form Modelsp. 369
Parametric Structural Modelsp. 371
Empirical Studies of Corporate Bondsp. 373
Modeling Interest Rate Swap Spreadsp. 383
Pricing Credit Default Swapsp. 384
Is Default Risk Priced?p. 387
Equity Option Pricing Modelsp. 391
No-Arbitrage Option Pricing Modelsp. 392
Option Pricingp. 396
Estimation of Option Pricing Modelsp. 397
Econometric Analysis of Option Pricesp. 401
Options and Revealed Preferencesp. 404
Options on Individual Common Stocksp. 410
Pricing Fixed-Income Derivativesp. 412
Pricing with Affine DTSMsp. 413
Pricing Using Forward-Rate Modelsp. 417
Risk Factors and Derivatives Pricingp. 425
Affine Models of Derivatives Pricesp. 428
Forward-Rate-Based Pricing Modelsp. 429
On Model-Basing Hedgingp. 431
Pricing Eurodollar Futures Optionsp. 433
Referencesp. 435
Indexp. 465
Table of Contents provided by Ingram. All Rights Reserved.

ISBN: 9780691122977
ISBN-10: 0691122970
Series: International Studen
Audience: Tertiary; University or College
Format: Hardcover
Language: English
Number Of Pages: 496
Published: 6th March 2006
Publisher: Princeton University Press
Country of Publication: US
Dimensions (cm): 24.03 x 16.46  x 3.79
Weight (kg): 0.79