Working Paper: NBER ID: w3195
Authors: Alberto Giovannini; Philippe Jorian
Abstract: This paper provides two alternative estimation and testing procedures of a representative-agent model of asset pricing which relies on a particular parametrization of non-expected-utility preferences. The first is based on maximum-likelihood estimates, supplemented with an explicit model of time varying first and second moments (where the time-variation of second moments in modelled with an ARCH-Autoregressive Conditionally Heteroskedastic-process); the second is based on generalized-method-of moments estimates. We perform our tests on a data set that includes monthly observations of rates of return on US stock prices and US consumption of nondurables and services. Our results are directly comparable to a test of the dynamic capital asset pricing model performed by Hansen and Singleton (1983), and to a recent test of the model studied here performed by Epstein and Zin (1989).
Keywords: Asset Pricing; Nonexpected Utility; Time Series Analysis
JEL Codes: G12; D81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumption growth (E20) | asset returns (G19) |
| conditional covariance with consumption growth (F62) | conditional expected returns on assets (G12) |
| nonexpected utility preferences (D81) | asset pricing performance (G19) |
| time-varying second moments (C22) | equilibrium returns of assets (G12) |