Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis

Larry Epstein and Stanley Zin

Journal of Political Economy, 1991, vol. 99, issue 2, 263-86

Abstract: This paper investigates the testable restriction on the time-series behavior of consumption and asset returns implied by a representative agent model in which intertemporal preferences are represented by utility functions that generalize conventional, time-additive, expected utility. The model based on these preferences allows a clearer separation of observable behavior attributable to risk aversion and to intertemporal substitution. Further, it nests the predictions of both the consumption CAPM and the static CAPM, and it allows direct tests of the expected utility hypothesis. We find that the performance of the non-expected utility model and tests of the expected utility hypothesis are sensitive to the choice of both consumption measure and instrumental variables. Copyright 1991 by University of Chicago Press.

Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (955)

Downloads: (external link)
http://dx.doi.org/10.1086/261750 full text (application/pdf)
Access to full text is restricted to subscribers. See http://www.journals.uchicago.edu/JPE for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:99:y:1991:i:2:p:263-86

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().