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Evaluating the C-CAPM and the Equity Premium Puzzle at Short and Long Horizons: A Markovian Bootstrap Approach

Опубликовано на портале: 21-06-2006
EFMA 2001 Lugano Meetings. 2001. 
We investigate the C-CAPM and the equity premium puzzle using asset returns and consumption data from the US and Denmark In contrast to previous studies the investigation is carried out with both short and long investment horizons In addition, we introduce a Markovian bootstrap approach to calculate the finite-sample distributions of thevarious test statistics used mong otherthings,our approach allows testing the hypothesis of no pricing errors based on the Hansen and Jagannathan (1997) specification error measure, which is not possible based on asymptotic approximations The analysis shows that there are large differences between US and Danish asset markets, and also to some extent differences depending on the length of the investment horizon In addition, with a long investment horizon, the asymptotic and bootstrap estimated distributions often differ markedly We also find that although the Hansen-Jagannathan specification error measure points to large pricing errors, when we account properly (using the bootstrap approach) for sampling error, there is no evidence against the C-CAPM with CRR utility in neither the US nor Danish data However, the bootstrap based tests of a zero-mean risk-adjusted equity premium clearly reject the model on US data

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http://ssrn.com/abstract=221668
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