Working Paper

A reconsideration of the properties of the generalized method moments in asset pricing models

Abstract: This paper tests the small sample properties of Hansen's (1982) Generalized Method of Moments (GMM) on simulated data from a consumption based asset pricing model. In finite samples the estimates of the coefficient of relative risk aversion and the discount parameter are strongly biased due to the unusual shape of the GMM criterion function for the model and the GMM test statistics perform poorly. In fact, the finite sample properties of the test statistics suggest the rejection results achieved by applying GMM to representative agent asset pricing models with real data (Hansen and Singleton 1982) must be viewed with some circumspection. Revised Version - 1995-018

Keywords: Prices; Statistics;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1994

Number: 1994-010