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PRICING KERNEL ESTIMATION: A LOCAL ESTIMATING EQUATION APPROACH

Published online by Cambridge University Press:  27 October 2014

Zongwu Cai ,
Yu Ren  and
Linman Sun
Zongwu Cai*
Affiliation:
University of Kansas and Xiamen University
Yu Ren*
Affiliation:
Xiamen University
Linman Sun
Affiliation:
Wells Fargo Bank
*
*Address correspondence to Zongwu Cai, Department of Economics, University of Kansas, Lawrence, KS 66045, USA and The Wang Yanan Institute for Studies in Economics and Fujian Key Laboratory of Statistical Science, Xiamen University, Xiamen, Fujian 361005, China; e-mail: zongwucai@gmail.com.
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Abstract

This paper investigates a general semiparametric stochastic discount factor formulation that avoids functional form misspecification. A new semiparametric estimation procedure is proposed which combines orthogonality conditions and local linear fitting to give a semiparametric generalized estimating equation approach. Asymptotic properties of the estimators are established and we explore the empirical usefulness of the proposed approach to value-weighted stock returns.

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Type
ARTICLES
Information
Econometric Theory , Volume 31 , Issue 3 , June 2015 , pp. 560 - 580
Copyright
Copyright © Cambridge University Press 2014 

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Footnotes

The authors would like to thank the editor, Professor Peter C.B. Phillips, the co-editor, Professor Oliver Linton, and the anonymous referees for their comments. Cai’s research was supported, in part, by the National Nature Science Foundation of China Grants #71131008 (Key Project), #70871003, and #70971113. Ren’s research was supported by a Natural Science Foundation of Fujian Province Grant (#2011J01384), the Fundamental Research Funds for the Central Universities (#2013221022), and the Natural Science Foundation of China Grants (#71301135, #71203189, #71131008).

References

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