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Nonlinearity and Endogeneity in Macro-Asset Pricing
1997
Studies in Nonlinear Dynamics & Econometrics
Linear asset-pricing relations, with macroeconomic factors as state variables, have found wide use in empirical finance. Applications of such relations range from academic studies of market efficiency and market anomalies to practical uses such as risk management and estimation of the cost of capital. These applications make two key assumptions: that the relationship is exclusively linear, and that the macroeconomic factors are exogenous to returns. For the set of macrofactors commonly used in
doi:10.2202/1558-3708.1030
fatcat:53uwpba3ijea3h7ywyxlqcfsq4