We develop a specification test and a sequence of model selection procedures for non-nested, overlapping, and nested models based on the second Hansen-Jagannathan distance, which requires a good asset pricing model to not only have small pricing errors but also be arbitrage free. Our methods...

Previous authors have raised the concern that there could be serious survival bias in the observed U.S. equity premium. Contrary to conventional wisdom, we argue that the survival bias in the U.S. data is unlikely to be significant. To reach this conclusion, we introduce a general framework for...

We characterize the dynamics of the U.S. short-term interest rate using a Markov regime switching model. Using a test developed by Garcia (1998), we show that there are two regimes in the data: In one regime, the short rate behaves like a random walk with low volatility; in another regime, it...