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What is Hansen–Jagannathan bound?

Hansen–Jagannathan bound

Hansen–Jagannathan bound is a theory stating that the ratio of the standard deviation of a stochastic discount factor to its mean is greater than the Sharpe ratio attained by any portfolio.

Where have you heard about Hansen–Jagannathan bound?

Hansen–Jagannathan bound is a term used in financial economics. It was first introduced in 1991 by American economists Ravi Jagannathan and Lars Peter Hansen in their paper titled 'Implications of Security Market Data for Models of Dynamic Economies'.

What you need to know about Hansen–Jagannathan bound.

The result arising from the Hansen-Jagannathan bound theory is an application of the the Cauchy-Schwarz inequality, which is considered to be one of the most important equalities in all of mathematics. Hansen-Jagannathan bounds are considered to be very volatile at times as explored in the 2015 paper titled 'The Exact Distribution of the Hansen-Jagannathan Bound' by R Kan. The paper also explores a geometric interpretation and distribution of the sample Hansen–Jagannathan bounds on the variance of admissible stochastic discount factors.

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