BAYESIAN-ESTIMATION OF STOCHASTIC DISCOUNT FACTORS

This article provides a Bayesian method of estimating the marginal pos terior distributions for stochastic discount factors associated with o bserved asset returns. These estimates can be used to provide measures of fit for asset-pricing models and to identify broad features of the characteristics that should be explained. These measures of fit can b e used to supplement model-evaluation exercises based on Hansen-Jagann athan bounds.