Abstract
| Original language | English |
|---|---|
| Journal | Journal of Financial Economics |
| Volume | 133 |
| Issue number | 1 |
| Pages (from-to) | 154-174 |
| Number of pages | 21 |
| ISSN | 0304-405X |
| DOIs | |
| Publication status | Published - Jul 2019 |
Keywords
- Recovery
- Asset pricing
- Pricing kernel
- Predicting returns
Cite this
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Generalized Recovery. / Jensen, Christian Skov ; Lando, David; Pedersen, Lasse Heje.
In: Journal of Financial Economics, Vol. 133, No. 1, 07.2019, p. 154-174.Research output: Contribution to journal › Journal article › Research › peer-review
TY - JOUR
T1 - Generalized Recovery
AU - Jensen, Christian Skov
AU - Lando, David
AU - Pedersen, Lasse Heje
PY - 2019/7
Y1 - 2019/7
N2 - We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. We make no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015). Recovery is feasible when the number of maturities with observable prices is higher than the number of states of the economy (or the number of parameters characterizing the pricing kernel). When recovery is feasible, our model allows a closed-form linearized solution. We implement our model empirically, testing the predictive power of the recovered expected return and other recovered statistics.
AB - We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. We make no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015). Recovery is feasible when the number of maturities with observable prices is higher than the number of states of the economy (or the number of parameters characterizing the pricing kernel). When recovery is feasible, our model allows a closed-form linearized solution. We implement our model empirically, testing the predictive power of the recovered expected return and other recovered statistics.
KW - Recovery
KW - Asset pricing
KW - Pricing kernel
KW - Predicting returns
KW - Recovery
KW - Asset pricing
KW - Pricing kernel
KW - Predicting returns
UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921387914&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes
U2 - 10.1016/j.jfineco.2018.12.003
DO - 10.1016/j.jfineco.2018.12.003
M3 - Journal article
VL - 133
SP - 154
EP - 174
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 1
ER -