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Article Dans Une Revue International Review of Economics and Finance Année : 2021

Tradable or nontradable factors : what does the Hansen–Jagannathan distance tell us?

Xiang Zhang
Yangyi Liu
  • Fonction : Auteur
Kun Wu
  • Fonction : Auteur
Bertrand Maillet

Résumé

We investigate the difference in pricing cross-sectional risky assets performance between tradable and nontradable factors by comparing their misspecification errors—the Hansen–Jagannathan (HJ) distance. By constructing nontradable factors mimicking portfolios (FMPs) and incorporating them into the least-misspecified tradable stochastic dis-count factor (SDF), we provide cross-country empirical evidence that this SDF that combines tradable and nontradable factors dominates others in which nontradable factors further decrease the SDF’s mis-specification errors. Since nontradable FMPs are functions of current tradable factor information about the economic state, FMPs “hedge” the state variable risks, and FMPs’ returns describe the risk premiums.
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Dates et versions

hal-03287946 , version 1 (16-07-2021)

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  • HAL Id : hal-03287946 , version 1

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Xiang Zhang, Yangyi Liu, Kun Wu, Bertrand Maillet. Tradable or nontradable factors : what does the Hansen–Jagannathan distance tell us?. International Review of Economics and Finance, 2021, 71, 853-879 p. ⟨hal-03287946⟩

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