## Resumen

The classical beta method and the stochastic discount factor (SDF) method may be

considered competing paradigms for empirical work in asset pricing. The two methods are equally efficient at estimating risk premiums in the context of the single-factor model. We show this does not hold for multi-factor models. Inference is consistently more reliable in the Beta method for the estimates in models which include size, value and momentum factors. However, our evidence also illustrates that the SDF method is generally more efficient at estimating sample pricing errors. Finally, the specification test in the Beta method tends to under-reject in finite samples while the SDF method has approximately the correct size. Our Monte Carlo simulation results are consistent whether we use a normal or empirical distribution, or different sets and sizes of tests portfolios.

considered competing paradigms for empirical work in asset pricing. The two methods are equally efficient at estimating risk premiums in the context of the single-factor model. We show this does not hold for multi-factor models. Inference is consistently more reliable in the Beta method for the estimates in models which include size, value and momentum factors. However, our evidence also illustrates that the SDF method is generally more efficient at estimating sample pricing errors. Finally, the specification test in the Beta method tends to under-reject in finite samples while the SDF method has approximately the correct size. Our Monte Carlo simulation results are consistent whether we use a normal or empirical distribution, or different sets and sizes of tests portfolios.

Idioma original | English |
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Estado | Published - 1 ene 2009 |

Evento | Southwestern Finance Association : 48th Annual Meeting Proceedings - Oklahoma City Duración: 1 ene 2009 → 8 ene 2009 Número de conferencia: 48th Annual Meeting |

### Conference

Conference | Southwestern Finance Association |
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Título abreviado | SWFA |

País/Territorio | United States |

Ciudad | Oklahoma City |

Período | 1/1/09 → 8/1/09 |