Statistical inference

Sociology

Macro

Test statistic

Capital asset pricing model

Inference

Consumption (sociology)

Mathematics

Social science

Statistical hypothesis testing

Statistic

Statistics

Risk premium

Econometrics

Artificial intelligence

Economics

Consumption-based capital asset pricing model

Programming language

Computer science

Computer security

Asset (computer security)

The Journal of Finance

ABSTRACT The reliability of traditional asset pricing tests depends on: (i) the correlations between asset returns and factors; (ii) the time series sample size T compared to the number of assets N . For macro‐risk factors, like consumption growth, (i) and (ii) are often such that traditional tests cannot be trusted. We extend the Gibbons‐Ross‐Shanken statistic to test identification of risk premia and construct their 95% confidence sets. These sets are wide or unbounded when T and N are close, but show that average returns are not fully spanned by betas when T exceeds N considerably. Our findings indicate when meaningful empirical inference is feasible.

Robust Inference for Consumption‐Based Asset Pricing