Abstract
Since Brazilian data sets for consumption and asset returns are short and the standard GMM-based overidentifying restrictions test has low power in small samples, a GMM approach imposes difficulties to the evaluation of asset pricing kernels better suited to describe asset pricing phenomena in Brazil. This paper addresses the question of estimating and testing two asset pricing models, using an information-theoretic method of moments estimator, which minimizes the Kullback-Leibler Information Criterion (KLIC). The goal is to compare the traditional GMM method with the alternative information-theoretic approach, which has promising finite sample properties, focusing on over identifying restrictions test and parameter estimate.
Highlights
This paper compares two alternative approaches for estimating and testing two consumption-based asset pricing models using Brazilian data. Issler and Piqueira(2000) applied the standard GMM approach to estimate three types of asset pricing kernels for Brazil
They were unable to reject constant relative risk aversion and external habit persistence models based up on the standard over identifying restrictions test. They mention the low power of the overidentifying restrictions test as a possible explanation for their inability in rejecting these asset pricing kernels
It is important to stress that a set of Monte Carlo studies gives support to a superior small sample size-adjusted power of information-theoretic tests compared to the traditional GMM approach
Summary
This paper compares two alternative approaches for estimating and testing two consumption-based asset pricing models using Brazilian data. Issler and Piqueira(2000) applied the standard GMM approach to estimate three types of asset pricing kernels for Brazil. Issler and Piqueira(2000) applied the standard GMM approach to estimate three types of asset pricing kernels for Brazil Using quarterly data, they were unable to reject constant relative risk aversion and external habit persistence models based up on the standard over identifying restrictions test. It is important to stress that a set of Monte Carlo studies gives support to a superior small sample size-adjusted power of information-theoretic tests compared to the traditional GMM approach. Gregory et al(2002) conducted a Monte Carlo study in the context of asset pricing models and applied the information-theoretic KLIC estimator to test two asset pricing kernels(constant absolute and constant relative risk aversion specifications). The aim of this paper is to conduct estimation and inference using the informationtheoretic method of moments strategy as discussed in Kitamura and Stutzer (1997) and compare the empirical results with their counterparts coming from a standard GMM framework. Rev. (Eng. ed., Online), Vitória, v. 3, n. 1, Art. 1, p. 1-14, jan.-jun. 2006 www.bbronline.com.br
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
