### Abstract

This article extends the work of Hansen and Jagannathan by showing how to decompose approximation errors in stochastic discount factor models by frequency. This decomposition is applied to a number of consumption-based discount factor models in order to investigate how well they fit at low frequencies. There is some evidence of improved fit at low frequencies, but only in models with high degrees of risk aversion. In models with low degrees of risk aversion, approximation errors at low frequencies are just as severe as those at high frequencies.

Original language | English (US) |
---|---|

Pages (from-to) | 473-503 |

Number of pages | 31 |

Journal | International Economic Review |

Volume | 42 |

Issue number | 2 |

State | Published - 2001 |

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### ASJC Scopus subject areas

- Economics and Econometrics

### Cite this

*International Economic Review*,

*42*(2), 473-503.

**A frequency decomposition of approximation errors in stochastic discount factor models.** / Cogley, Timothy.

Research output: Contribution to journal › Article

*International Economic Review*, vol. 42, no. 2, pp. 473-503.

}

TY - JOUR

T1 - A frequency decomposition of approximation errors in stochastic discount factor models

AU - Cogley, Timothy

PY - 2001

Y1 - 2001

N2 - This article extends the work of Hansen and Jagannathan by showing how to decompose approximation errors in stochastic discount factor models by frequency. This decomposition is applied to a number of consumption-based discount factor models in order to investigate how well they fit at low frequencies. There is some evidence of improved fit at low frequencies, but only in models with high degrees of risk aversion. In models with low degrees of risk aversion, approximation errors at low frequencies are just as severe as those at high frequencies.

AB - This article extends the work of Hansen and Jagannathan by showing how to decompose approximation errors in stochastic discount factor models by frequency. This decomposition is applied to a number of consumption-based discount factor models in order to investigate how well they fit at low frequencies. There is some evidence of improved fit at low frequencies, but only in models with high degrees of risk aversion. In models with low degrees of risk aversion, approximation errors at low frequencies are just as severe as those at high frequencies.

UR - http://www.scopus.com/inward/record.url?scp=0040923835&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0040923835&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:0040923835

VL - 42

SP - 473

EP - 503

JO - International Economic Review

JF - International Economic Review

SN - 0020-6598

IS - 2

ER -