Implications of security market data for models of dynamic economies

Lars Peter Hansen and Ravi Jagannathan

No 29, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: We show how to use security market data to restrict the admissible region for means and standard deviations of intertemporal marginal rates of substitution (IMRS’s) of consumers. Our approach is (i) nonparametric and applies to a rich class of models of dynamic economies; (ii) characterizes the duality between the mean-standard deviation frontier for IMRS’s and the familiar mean-standard deviation frontier for asset returns; and (iii) exploits the restriction that IMRS’s are positive random variables. The region provides a convenient summary of the sense in which asset market data are anomalous from the vantage point of intertemporal asset pricing theory.

Keywords: Securities; Stock - Prices (search for similar items in EconPapers)
Date: 1990
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Related works:
Working Paper: Implications of Security Market Data for Models of Dynamic Economies (1990)
Journal Article: Implications of Security Market Data for Models of Dynamic Economies (1991)
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