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SUMMARY:Misspecified Recovery - Jose A. Scheinkman\, Edwin W. Rickert Prof
 essor of Economics at Columbia University
DTSTART:20141009T160000Z
DTEND:20141009T170000Z
UID:TALK53772@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Joint paper with Jarda Borovicka and Lars Hansen.\n\nAbstract:
 \n\nAsset prices contain information about the probability distribution of
  future states and the stochastic discounting of these states. Without add
 itional assumptions\, probabilities and stochastic discounting cannot be s
 eparately identified. Ross (2013) introduced a set of assumptions that res
 trict the dynamics of the stochastic discount factor in a way that allows 
 for the recovery of the underlying probabilities. We use decomposition res
 ults for stochastic discount factors from Hansen and Scheinkman (2009} to 
 explain when this procedure leads to misspecified recovery. We also argue 
 that the empirical evidence on asset prices indicates that the recovered m
 easure would  differ substantially from the actual probability distributio
 n and that interpreting this measure as the true probability distribution 
 may severely bias our inference about risk premia\, investors' aversion to
  risk\, and the welfare cost of economic fluctuations.\n\nThe paper can be
  downloaded from:\n\n"Misspecified Recovery":http://papers.ssrn.com/sol3/p
 apers.cfm?abstract_id=2441376
LOCATION:Judge Business School  - Room W4.03
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