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Third Quarter 2020, 
Vol. 102, No. 3
Posted 2020-07-31

Asset Pricing Through the Lens of the Hansen-Jagannathan Bound


Stochastic discount factor (SDF) models are the dominant framework for modern asset pricing. The Hansen-Jagannathan bound is a characterization of the admissible set of SDFs, given a vector of asset returns. The admissible set provides (i) a test of the asset-pricing model and (ii) information on how to modify the SDF to be consistent with asset returns, neither of which requires solving the model. In this article we use the Hansen-Jagannathan bound to examine asset-pricing implications and to test specific asset-pricing models using bootstrap experiments.