Evaluating a nonlinear asset pricing model on international data

Hossein Asgharian and Sonnie Karlsson
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Sonnie Karlsson: Danmarks Nationalbank

No 2006:5, Working Papers from Lund University, Department of Economics

Abstract: The paper analyses the ability of a nonlinear asset pricing model suggested by Dittmar (2002) to explain the returns on international value and growth portfolios. For comparison we use some competing pricing models; such as the ICAPM, the exchange rate risk augmented ICAPM and the international two-factor model proposed by Fama and French (1998). All models are evaluated both unconditionally and conditionally. The models are evaluated by applying the Hansen and Jagannathan distance measure. We also employ several alternative measures to ensure a robust comparison of the models. We find support for the model of Dittmar (2002). Evaluated conditionally, this model successfully passes all the different diagnostic tests performed in the analysis.

Keywords: nonlinear asset pricing; international markets; Hansen and Jagannathan distance; value effect (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-02-27
New Economics Papers: this item is included in nep-fin and nep-rmg
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Published as Asgharian, Hossein and Sonnie Karlsson, 'Evaluating a nonlinear asset pricing model on international data' in International Review of Financial Analysis, 2008, pages 604-621.

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