Econometric Evaluation of Asset Pricing Models

Whilst the greatest effort has been made to ensure the quality of this text, due to the historical nature of this content, in some rare cases there may be minor issues with legibility. Thus a stochastic discount factor m discounts payoffs in each state of the world and, as a consequence, adjusts the price according to the riskiness of the payoff. From the vantage point of an empirical analysis, we envision the stochastic discount factor as the vehicle linking a theoretical model to observable implications.