Lars Peter Hansen

The Generalized Method of Moments estimates economic models by matching theoretical moment conditions with patterns observed in data. Hansen's 1982 formulation is especially useful when a model supplies more valid conditions than there are parameters to estimate.

Ordinary least squares minimizes squared prediction errors under a particular regression structure. GMM is broader: it can use multiple orthogonality conditions and instrumental variables without requiring a complete probability distribution for the data.

Hansen shared the prize with Eugene Fama and Robert Shiller for empirical analysis of asset prices. His contribution provided statistical methods for testing whether asset-pricing models are consistent with observed returns.

The J-test evaluates overidentifying restrictions in a GMM model. It asks whether the full collection of instruments and moment conditions is jointly consistent with the data, although passing the test does not prove that every modeling assumption is correct.