Generalized method of moments: Applications in finance

Ravi Jagannathan*, Georgios Skoulakis, Zhenyu Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

We provide a brief overview of applications of generalized method of moments in finance. The models examined in the empirical finance literature, especially in the asset pricing area, often imply moment conditions that can be used in a straight forward way to estimate the model parameters without making strong assumptions regarding the stochastic properties of variables observed by the econometrician. Typically the number of moment conditions available to the econometrician would exceed the number of model parameters. This gives rise to overidentifying restrictions that can be used to test the validity of the model specifications. These advantages have led to the widespread use of the generalized method of moments in the empirical finance literature.

Original languageEnglish (US)
Pages (from-to)470-481
Number of pages12
JournalJournal of Business and Economic Statistics
Volume20
Issue number4
DOIs
StatePublished - Oct 1 2002

Keywords

  • Asset pricing models
  • Bid-ask spreads
  • CAPM
  • Estimating scalar diffusions
  • Generalized method of moments
  • Linear beta pricing models
  • Market microstructure
  • Mean-variance efficiency
  • Mean-variance spanning
  • Stochastic discount factor

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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