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Evaluating a nonlinear asset pricing model on international data

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Author

Summary, in English

The paper analyses the ability of a non-linear asset pricing model suggested by Dittmar [Dittmar, R.F., 2002. Non-linear pricing kernels, kurtosis preference, and the cross-section of equity returns. Journal of Finance 57, 369–403] to explain the returns on international value and growth portfolios. For comparison we use competing pricing models such as the ICAPM, the exchange rate risk augmented ICAPM and the international two-factor model proposed by Fama and French [Fama, E.F., French, K. R., 1998. Value versus growth: The international evidence. Journal of Finance 53, 1975–1999]. All models are evaluated both unconditionally and conditionally. The models are evaluated by applying the Hansen and Jagannathan distance measure, and we also employ several alternative measures to ensure a robust comparison of the models. We find support for the model of Dittmar [Dittmar, R.F., 2002. Non-linear pricing kernels, kurtosis preference, and the cross-section of equity returns. Journal of Finance 57, 369–403]. Evaluated conditionally, this model successfully passes all the different diagnostic tests performed in the analysis.

Publishing year

2008

Language

English

Pages

604-621

Publication/Series

International Review of Financial Analysis

Document type

Journal article

Publisher

North-Holland

Topic

  • Economics

Keywords

  • International markets
  • Non-linear asset pricing
  • Hansen and Jagannathan distance
  • Value effect

Status

Published

ISBN/ISSN/Other

  • ISSN: 1057-5219