For many multi-factor asset pricing models proposed in the recent literature, their implied tang-ency portfolios have substantially higher sample Sharpe ratios than that of the value-weighted market portfolio. In contrast, such high sample Sharpe ratio is rarely delivered by professional fund...

This paper derives explicit expressions for the asymptotic variances of the maximum likelihood and continuously updated GMM estimators under potentially misspecified models. The proposed misspecification-robust variance estimators allow the researcher to conduct valid inference on the model...

We provide an in-depth analysis of the theoretical properties of the Hansen-Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. Under a multivariate elliptical distribution assumption, we present explicit expressions for the HJ-distance with a no-arbitrage constraint, the...

Although it is of interest to test whether or not a particular asset pricing model is literally true, a more useful task for empirical researchers is to determine how wrong a model is and to compare the performance of competing asset pricing models. In this paper, we propose a new methodology to...

Since Black, Jensen, and Scholes (1972) and Fama and MacBeth (1973), the two-pass cross-sectional regression (CSR) methodology has become the most popular approach for estimating and testing asset pricing models. Statistical inference with this method is typically conducted under the assumption...

We provide an in-depth analysis of the theoretical and statistical properties of the Hansen-Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. We show that for stochastic discount factors (SDF) that are spanned by the returns on the test assets, testing the equality of HJ...