Title: Intermediary asset pricing: Empirical evidence revisited
Authors: Cesare Robotti - University of Warwick (United Kingdom) [presenting]
Nikolay Gospodinov - Federal Reserve Bank of Atlanta (United States)
Abstract: New asymptotic tests are proposed on individual asset pricing errors in two-pass cross-sectional regressions. In particular, we show how the individual pricing errors from alternative pricing models can be formally compared in the presence of potential global model misspecification. This complements the large existing literature based on the comparison of aggregate measures of pricing errors. Empirically, we revisit numerous studies on intermediary asset pricing and show that the apparently good performance of leverage-augmented beta-pricing models is due to ignoring model misspecification and the presence of spurious factors in the analysis. Finally, we provide guidance for reliable inference on risk premia and model performance in linear beta-pricing models.