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QFRC Occasional Lecture

QFRC Occasional Lecture

 

Small Sample Bias in Pricing Kernel Estimations 


PRESENTER:
Professor Dietmar P.J. Leisen 

  RSVP:  qfrc@uts.edu.au for catering purposes

 Abstract


Numerous empirical studies find pricing kernels that are not-monotonically decreasing; this is at odds with the theoretical result that the pricing kernel is given as the marginal utility of a risk-averse price-setting representative agent. However, so far the literature ignored biases in pricing kernel estimations; this paper studies explicitly the (proportional) bias in estimations of the objective and of the risk-neutral densities and argues that both estimations are subject to sizable small sample biases. We then relate these to a small sample (proportional) bias in the estimation of the pricing kernel. Theoretical analyses as well as empirical applications show that small sample biases signicantly impact the shape of the estimated pricing kernel; ignoring the bias, econometricians may  find empirically a locally increasing pricing kernel. We also find support for the empirically observed shape in simulations where the true pricing kernel is assumed to be a power function.


Date:          Tuesday 2 December 2014          

Time:          4:00pm-6:00 pm

Location:     City - Haymarket CM05D Level 2 Conference Room

RSVP:         Caroline.Dobson@uts.edu.au  and Map


Upcoming Events go here: http://cfsites1.uts.edu.au/qfrc/news-events/index.cfm


 

Date:
2 December 2014
Time:
16:00 - 18:00
RSVP Essential
Location:
City - Haymarket CB05D LEVEL 2: Conference Room
Audience:
All Welcome
Cost:
Complimentary
RSVP:
qfrc@uts.edu.au
Contact:
Caroline Dobson
More info:
qfrc@uts.edu.au
URL:
Map

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