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Spectral Properties of Asset Pricing Models: A General Equilibrium Perspective

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Date
2006
Dewey
Economie financière
Sujet
Spectral Analysis; Capital Adjustment Cost; Habit Formation; Equity Premium Puzzle
JEL code
D58; G12
Journal issue
Macroeconomic Dynamics
Volume
10
Number
2
Publication date
2006
Article pages
183-205
Publisher
Cambridge University Press
DOI
http://dx.doi.org/10.1017/S1365100506050164
URI
https://basepub.dauphine.fr/handle/123456789/1847
Collections
  • LEDa : Publications
Metadata
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Author
Beaubrun-Diant, Kevin
Type
Article accepté pour publication ou publié
Abstract (EN)
This paper studies asset returns adopting an alternative strategy to assess a model s goodness of fit. Based on spectral analysis, this approach considers a model as an approximation to the process generating the observed data, and characterizes the dimensions for which the model provides a good approximation and those for which it does not. Our aim is to offer new evidence regarding the size and the location of approximation errors of a set of stochastic growth models considered to be decisive steps in the progress of the asset pricing research program. Our specific objective is to reevaluate the results of Jermann s (1998) model extending the calculations to the spectral domain. Spectral results are relatively satisfactory: the benchmark model needs very few contributions of approximation errors to account for the empirical equity premium. Second, the location of the approximation errors, when they are substantial, seems to be essentially concentrated at high frequencies.

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