Robust inference for consumption-based asset pricing with power
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Publication date
2025
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01A - Journal article
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Critical Finance Review
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14
Issue / Number
1
Pages / Duration
129-178
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Now Publishers
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Abstract
Kleibergen and Zhan (2020) propose a new approach to test consumption-based asset pricing models that is robust to the “useless” factor problem, i.e., concluding too often that a factor is priced when the factor is actually uncorrelated with the test assets and is not priced. I show that even when factor correlation is economically large and significant (think of 0.40 and larger), their testing approach lacks power in small samples to detect sufficient factor correlation or to find that a factor is priced. I propose simple remedies that help to achieve robust and powerful asset pricing tests.
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2164-5760
2164-5744
2164-5744
Language
English
Created during FHNW affiliation
Yes
Strategic action fields FHNW
Publication status
Published
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Peer review of the complete publication
Open access category
Hybrid
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Citation
Kröncke, T. (2025). Robust inference for consumption-based asset pricing with power. Critical Finance Review, 14(1), 129–178. https://doi.org/10.1561/104.00000154