We introduce econometric methods to perform estimation and inference on the permanent and transitory components of the stochastic discount factor (SDF) in dynamic Markov environments. The approach is nonparametric in that it does not impose parametric restrictions on the law of motion of the...

This paper addresses questions regarding the dimensionality of the stochastic discount factor and the selection of the best factors that enter it. We analyze these questions theoretically and empirically with a novel methodology which performs both (i) estimation of factor loadings and (ii) best...

This paper presents estimates of key preference parameters of the Epstein and Zin (1989 , 1991) and Weil (1989) recursive utility model, evaluates the model’s ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the...

This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) (EZW) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the...

In parametric models a sufficient condition for local identification is that the vector of moment conditions is differentiable at the true parameter with full rank derivative matrix. We show that there are corresponding sufficient conditions for nonparametric models. A nonparametric rank...