An estimation of economic models with recursive preferences

Xiaohong Chen (), Jack Favilukis and Sydney Ludvigson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the unobservable aggregate wealth return. Our empirical results indicate that the estimated relative risk aversion parameter ranges from 17 to 60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above 1. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the Center for Research in Security Prices value-weighted stock market return, suggesting that the return to human wealth is negatively correlated with the aggregate stock market return.

Keywords: Consumption based asset pricing; semiparametric estimation; limited stock market participation (search for similar items in EconPapers)
JEL-codes: E21 G12 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-mac and nep-upt
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Citations: View citations in EconPapers (46)

Published in Quantitative Economics, March, 2013, 4(1), pp. 39-83. ISSN: 1759-7323

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Related works:
Journal Article: An estimation of economic models with recursive preferences (2013)
Working Paper: An estimation of economic models with recursive preferences (2012)
Working Paper: An Estimation of Economic Models with Recursive Preferences (2012)
Working Paper: An estimation of economic models with recursive preferences (2012)
Working Paper: An Estimation of Economic Models with Recursive Preferences (2011)
Working Paper: An estimation of economic models with recursive preferences (2007)
Working Paper: An Estimation of Economic Models with Recursive Preferences (2007)
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