Diagnosing Dynamic Asset Pricing Models with Generalized Entropy Bounds

I examine moment characteristics and predictability assumptions of dynamic asset pricing models. I propose a new measure --- the generalized entropy --- to summarize moment information of the multi-horizon pricing kernel for a dynamic model. Both static and dynamic strategy returns impose robust restrictions on the generalize entropy, providing a way to test candidate models. Applying this test to leading representative agent models and by creating dynamic strategies that depend on model-implied predictive signals, I find that models featuring growth uncertainty is able to explain market data better

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Year of publication:	2018
Authors:	Liu, Yan
Publisher:	[2018]: [S.l.] : SSRN
Subject:	Entropie \| Entropy \| Theorie \| Theory \| CAPM \| Portfolio-Management \| Portfolio selection

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