Growth-optimal portfolio restrictions on asset pricing models

Published

Journal Article

We show that absence of arbitrage in frictionless markets implies a lower bound on the average of the logarithm of the reciprocal of the stochastic discount factor implicit in asset pricing models. The greatest lower bound for a given asset menu is the average continuously compounded return on its growth-optimal portfolio. We use this bound to evaluate the plausibility of various parametric asset pricing models to characterize financial market puzzles such as the equity premium puzzle and the risk-free rate puzzle. We show that the insights offered by the growth-optimal bounds differ substantially from those obtained by other nonparametric bounds.

Full Text

Duke Authors

Cited Authors

  • Bansal, R; Lehmann, BN

Published Date

  • January 1, 1997

Published In

Volume / Issue

  • 1 / 2

Start / End Page

  • 333 - 354

International Standard Serial Number (ISSN)

  • 1365-1005

Digital Object Identifier (DOI)

  • 10.1017/s1365100597003039

Citation Source

  • Scopus