Long Run Law and Entropy
Theoretical Economics
2021-11-12 v1
Abstract
This paper demonstrates the additive and multiplicative version of a long-run law of unexpected shocks for any economic variable. We derive these long-run laws by the martingale theory without relying on the stationary and ergodic conditions. We apply these long-run laws to asset return, risk-adjusted asset return, and the pricing kernel process and derive new asset pricing implications. Moreover, we introduce several dynamic long-term measures on the pricing kernel process, which relies on the sample data of asset return. Finally, we use these long-term measures to diagnose leading asset pricing models.
Keywords
Cite
@article{arxiv.2111.06238,
title = {Long Run Law and Entropy},
author = {Weidong Tian},
journal= {arXiv preprint arXiv:2111.06238},
year = {2021}
}
Comments
42 pages