THIS BOOK IS an outgrowth of many years of teaching advanced econometrics and empirical finance to doctoral students at Carnegie Mellon and Stanford Universities. I am grateful to the students in these courses who have challenged my own thinking about econometric modeling of asset price behavior and thereby have influenced the scope and substance of this book.
My way of approaching the topics addressed here, and indeed my understanding of many of the issues, have been shaped to a large degree by discussions and collaborations with Lars Hansen and Darrell Duffie starting in the 1980s. Their guidance has been invaluable as I have wandered through the maze of dynamic asset pricing models.
More generally, readers will recognize that I draw heavily from published work with several co-authors. Chapters 3 and 4 on the properties of econometric estimators and statistical inference draw from joint work [with Lars Hansen. Chapter 6 on simulation-based estimators draws from my joint work with Darrell Duffie on simulated method of moments estimation. Chapter 5 on affine processes draws from joint work with Qiang Dai, Darrell Duffie, Anh Le, and Jun Pan. Chapters 10 and 11 on preference-based pricing models and beta models for asset returns draw upon joint work with Lars Hansen, Scott Richard, and Marty Eichenbaum. Chapters 12 and 13 draw upon joint work with Qiang Dai, Anh Le, and Wei Yang. The discussion of defaultable security pricing in Chapter 14 draws upon joint work with Darrell Duffie, Lasse Pedersen, and Jun Pan. Portions of Chapter 16 are based on joint work with Qiang Dai and Len Umantsev. I am sincerely grateful to these colleagues for the opportunities to have worked with them and, through these collaborations, for their contributions to this effort. They are, of course, absolved of any responsibility for remaining confusion on my part.
I am also grateful to Mikhail Chernov, Michael Johannes, and Stefan Nagel for their helpful comments on drafts of this book, particularly on the chapters covering equity returns and option prices.