An Empirical Assessment of a Consumption CAPM with a Reference Level under Incomplete Consumption Insurance

Andrei Semenov ()
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Andrei Semenov: Department of Economics, York University

Working Papers from York University, Department of Economics

Abstract: We study asset pricing implications of the preference specification in which an agent derives utility from both the ratio of his consumption to some reference level and this level itself under incomplete consumption insurance and limited asset market participation. Assuming that the reference level responds gradually to changes in aggregate consumption per capita, we show that when asymmetry in individual consumption is taken into account, the obtained estimate of the elasticity of intertemporal substitution is in the conventional range and significantly different from the inverse of the relative risk aversion (RRA) coefficient as the definition of assetholders is tightened. Both the power utility model and the ratio preference specification are rejected statistically.

Keywords: incomplete consumption insurance; intertemporal substitution; limited asset market participation; risk aversion (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-12
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Citations: View citations in EconPapers (3)

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http://econ.yorku.ca/%7Easemenov/wp2003-12-2.pdf First version, 2003

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Persistent link: https://EconPapers.repec.org/RePEc:yca:wpaper:2003_5

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