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The Role of Conditioning Information in Deducing Testable Restrictions Implied by Dynamic Asset Pricing Models
Lars Peter Hansen
Scott F. Richard
Abstract
The purpose of this paper is to investigate testable implications of equilibrium asset pricing models. We derive a general representation for asset prices that displays the role of conditioning information. This representation is then used to examine restrictions implied by asset pricing models on the unconditional moments of asset payoffs and prices. In particular, we analyze the effect of information omission on the mean-variance frontier of one-period returns on portfolios of securities. Also, we deduce an information extension of equilibrium pricing functions that is useful in deriving restrictions on the unconditional moments of payoffs and prices.
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