Overview and Description of Data

Abstract

This section provides an overview of the empirical analysis. The analysis proceeds in two steps. The first step (chapter 7) is to apply the variance bound approach in order to analyze the information content of different asset return data sets for intertemporal asset pricing and to compare the potential of the parametric models of the market pricing kernel derived in section 4.2 to be consistent with these returns. Variance bounds are calculated from German stock, bond and money market returns in the period 1968 to 1994¹. The second step is to apply the calibration approach (chapter 8) and to evaluate calibrated models using simulation techniques (chapter 9) in order to analyze whether the parametric models of the market pricing kernel can explain specific properties of the German one-period risk-free rate and the German equity premium observed in the period 1960 to 1994².