Volatility of the Stochastic Discount Factor, and the Distinction between Risk-Neutral and Objective Probability Measures

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dc.contributor.authorHjalmarsson, Erikswe
dc.contributor.authorChen, Zhiwuswe
dc.contributor.authorBakshi, Gurdipswe
dc.contributor.departmentDepartment of Economicsswe
dc.date.accessioned2005-02-07swe
dc.date.accessioned2007-02-09T11:15:20Z
dc.date.available2007-02-09T11:15:20Z
dc.date.issued2005swe
dc.description.abstractThis paper derives a measure that characterizes the distance between the risk-neutral and the objective probability measures for any candidate asset pricing model. We formally show that the distance metric is equal to the volatility of the stochastic discount factor. This theoretical result gives an alternative interpretation to the Hansen-Jagannathan bounds: they provide a lower bound for the distance between the objective and the risk-neutral probability measures. Our empirical application provides support for the notion that the crash of 1987 has widened the wedge between the risk-neutral and the objective probability measures.swe
dc.format.extent23 pagesswe
dc.format.extent333517 bytes
dc.format.mimetypeapplication/pdf
dc.gup.epcid4032swe
dc.gup.originGöteborg University. School of Business, Economics and Lawswe
dc.identifier.issn1403-2465swe
dc.identifier.urihttp://hdl.handle.net/2077/2766
dc.language.isoenswe
dc.relation.ispartofseriesWorking Papers in Economics, nr 159swe
dc.subjectRisk-neutral measuresswe
dc.subjectobjective probability measuresswe
dc.subjectvolatility of the stochastic discount factorswe
dc.subjectno-arbitrageswe
dc.subjectHansen-Jagannathan boundsswe
dc.subject.svepEconomicsswe
dc.titleVolatility of the Stochastic Discount Factor, and the Distinction between Risk-Neutral and Objective Probability Measuresswe
dc.type.svepReportswe

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