The test problems included in this package are outdated they are too simple and they do not reflect todays challenging 2d problems. Cody is a matlab problemsolving game that challenges you to expand your knowledge. Hansen jagannathan bound is a theorem in financial economics that says that the ratio of the standard deviation of a stochastic discount factor to its mean exceeds the sharpe ratio attained by any portfolio. Evaluating assetpricing models using the hansenjagannathan bound. In addition, hansen and jagannathan 1991 propose a tighter volatility bound constrained hjbound hereafter that is applicable to nonnegative sdfs. Evaluating assetpricing models using the hansenjagannathan.
A monte carlo investigation article in journal of applied econometrics 172 march 2002 with 85 reads how we measure reads. On the properties of the constrained hansenjagannathan. S223 s250 hansen lp, jagannathan r 1991 implications of security market data for models of dynamic economies. A stochastic discount factor approach to asset pricing. Thishan dharshana karandana gamalathge matlab central. Matlab central contributions by jagannathan tiruvallur eachambadi. Answered while converting frames into video i was getting some errors. In addition, hansen and jagannathan 1991 propose a tighter volatility bound constrained hj bound hereafter that is applicable to nonnegative sdfs. Provide your first answer ever to someone elses question. Recursive macroeconomic theory second edition mafiadoc.
However we can in practice nd tigher bounds if we use the model for multiple returns ri. Arch cointegration gmm and empirical likelihood markov switching structural change tests threshold models unit roots. Zhou 1999 improves ross upper bound on predictability implied by asset pricing theory. Endogenous borrowing constraints with incomplete markets. This result applies, among others, the cauchyschwarz inequality references. Matlab central contributions by jamuna jayashri mahalingam.
These are used to answer question 5 in problem set 3. I work at mathworks with background in signal processing. Improvement in finite sample properties of the hansenjagannathan distance test yu ren queens university. Here are a few helping points to go with the code, but machinery. Assume that preferences are time separable crra in this.
We thank arnir yaron for providing us the matlab code used in the computation. Set the array elements whose value is to 0 set the array elements whose value is to 0 on 20 apr 2017. I have keen interest in radar signal processing, array processing and statistical signal processing. The book is suitable for both first and secondyear graduate courses in macroeconomics and monetary economics. Any advice or opinions posted here are my own, and in no way reflect that of mathworks.
Matlab to determine whether such a problem is feasible. Matlab programs various exercises and examples use matlab. Theoretical justification for the importance of distributional asymmetries may be found in arrow 1971, who suggests that a desirable property of a utility function is that it exhibits nonincreasing absolute risk aversion. Differences in aggregate measures of pricing errors and in constrained and. This contrasts sharply with the very high rra that the standard ccapm requires. Only experience in solving practical problems fully conveys the power of the recursive approach, and the book provides many. The exact distribution of the hansen jagannathan bound raymond kan and cesare robotti working paper 20089 february 2008 abstract. Matlab central contributions by thishan dharshana karandana gamalathge. Recursive macroeconomic theory provides both an introduction to recursive methods and advanced material, mixing tools and sample applications. Econ 745 simon gilchrist problem set 3 due tuesday, oct 8th this. Course materials the econometrics of financial markets, by john y. The typical steps for hj bound creation in the usual plots is to.
Guofu zhou olin business school washington university. Under the law of one price, hansen and jagannathan 1991 derive a lower volatility bound unconstrained hjbound hereafter that every valid stochastic discount factor sdf must satisfy. Improvement in finite sample properties of the hansenjagannathan distance test yu ren y katsumi shimotsu z june 21, 2007. Pdf computing generalized method of moments and generalized. Econ 745 simon gilchrist problem set 3 due tuesday, oct 8th. Assuming that the factor and the excess returns on the test assets are multivariate tdistributed with six degrees of freedom, fig. Awarded to thishan dharshana karandana gamalathge on 27 sep 2018.
Federal reserve bank of new york staff reports empirical evaluation of asset pricing models. Hansenjagannathan bounds in class we concentrated on the simple hj inequality with one excess return. Hansenjagannathan bound is a theorem in financial economics that says that the ratio of the standard deviation of a stochastic discount factor to its mean exceeds the sharpe ratio attained by any portfolio. Arch cointegration gmm and empirical likelihood markov switching structural change tests threshold models unit roots florida vote multivariate betalogit nonparametrics. Under the assumption of multivariate normality of asset returns, this paper presents a geometrical interpretation and the finitesample di stributions of the sample hansenjagannathan 1991. The exact distribution of the hansenjagannathan bound. See more details hereabout how to download and use it. The hansen jagannathan distance measure spectral analysis 4. The standard deviation of the imrs in consumption is equal to 0. Inner product representation of the pricing kernel. Many exercises and examples use matlab programs, which are cited in a special index at the end of the book. This paper provides an indepth analysis of the hansenjagannathan hj distance, which is a measure that is widely used for. M to do some data manipulations, so you need to download this too. Under the assumption of multivariate normality of asset returns, this paper presents a geometrical interpretation and the finitesample di stributions of the sample hansen jagannathan 1991.
This result applies, among others, the cauchyschwarz inequality. When you start matlab, the matlab desktop appears, containing tools graphical user interfaces for managing les, variables, and applications associated with matlab. Hansenjagannathan bound theorem hansenjagannathan bound. The annual hansen jagannathan volatility bound is constructed using the annual stock and bond returns by compounding quarterly real valueweighted nyse and treasury bill returns from 1947.
You will have to download an excel data file from the course dropbox. On the outofsample importance of skewness and asymmetric. The exact distribution of the hansenjagannathan bound spiral. Hansen jagannathan bound theorem hansen jagannathan bound. Recursive macroeconomic theory second edition slidelegend. Matlab programs various exercises and examples use. How can i process a sequence of excel files inside a for loop i have n numbers of excel files like this. In many applications, the correlation is small, and hence our bound can be. The annual hansenjagannathan volatility bound is constructed using the annual stock and bond returns by compounding quarterly real valueweighted nyse and treasury bill returns from 1947.
Improvement in finite sample properties of the hansen. Path to the file, specified as a string or character vector. Assume that preferences are time separable crra in this case. You can use matlabs minimizer fminsearch to solve the minimum of the objective function. The maximum sharpe ratio for this pricing kernel is the ratio of the standard deviation of the pricing kernel to its mean. Please be considerate and avoid sending personal messages to. Consumption based models dont work empirically equity premium puzzle. Assume that preferences are time separable crra in this case we can define the from econ 8107 at university of minnesota. This book contains both an introduction to recursive tools, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design. Hence, models can be directly compared using their tmbm bounds. Choose a web site to get translated content where available and see local events and offers. Matlab central contributions by niranjana shashikumar.
Lars hansen and others have elegantly organized this evidence as follows. Hansenjagannathan bound is a theorem in financial economics that says that the ratio of the standard deviation of a stochastic discount factor to its mean. The exact distribution of the hansenjagannathan bound raymond kan and cesare robotti working paper 20089 february 2008 abstract. Hansen and jagannathan 1997, we show that our sdf proxy can price. Save description of variable bounds matlab writebounds. This theoretical result gives an alternative interpretation to the hansenjagannathan bounds. In addition, since the sample hansenjagannathan bounds can be very volatile. Recursive methods offer a powerful approach for characterizing and solving complicated problems in dynamic macroeconomics.
Hansenjagannathan bound raymond kan and cesare robotti. The hansen jagannathan bound states that the maximum sharpe ratio of a portfolio cant exceed the ratio of the standard deviation of a stochastic discount factor to its mean. Topics in asset pricing hebrew university of jerusalem. The second part of the above matlab code does this. Instead, please use the 2d test problems provided in the matlab packages ir tools and air tools ii. The ratio of the standard deviation of a stochastic discount factor to its mean exceeds the sharpe ratio attained by any portfolio.
Hansen jagannathan bounds in class we concentrated on the simple hj inequality with one excess return. The tmbm bounds also generalize the hansenjagannathan distance measure. Arbitrage and pricing errors in contingent claims zhenyu wang xiaoyan zhang staff report no. In contrast to the well known hansenjagannathan bound that places a lower bound on the variance of mx, our bound tightens it by a ratio of 1. Since there is the widely held belief that rra should be low see e. Volatility of the stochastic discount factor, and the distinction.
Recursive macroeconomic theory lars ljungqvist, thomas j. Intuitive explanation of the hansenjagannathan bound. In the data you have to enter a gross portfolio, i forgot to comment. Econ 745 simon gilchrist problem set 3 due tuesday, oct. The resulting file is a text file, so the file name typically has the extension.