IS THE EX-ANTE RISK PREMIUM ALWAYS POSITIVE - A NEW APPROACH TO TESTING CONDITIONAL ASSET PRICING-MODELS

This paper develops tests of inequality restrictions implied by condit ional asset pricing models. The methodology is easy to implement, requ ires little knowledge of the conditional distribution of asset returns , and is valid under fairly weak assumptions. As an application, we te st whether the ex ante risk premium is always positive. We report reli able evidence that the ex ante risk premium is negative in some states of the world; these states are related to periods of high expected in flation and especially to downward-sloping term structures.