A stochastic discount factor approach to asset pricing using panel data

Using the Pricing Equation, in a panel-data framework, we construct a novel consistent estimator of the stochastic discount factor (SDF) mimicking portfolio which relies on the fact that its logarithm is the ?common feature?in every asset return of the economy. Our estimator is a simple function of asset returns and does not depend on any parametric function representing preferences, making it suitable for testing di?erent preference speci?cations or investigating intertemporal substitution puzzles.