Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns

Stephen Cecchetti, Pok-sang Lam and Nelson Mark

No 124, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: The Euler equations derived from a broad range of intertemporal asset pricing models, together with the first two unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. We develop and implement statistical tests of these lower bound restrictions. We conclude that the availability of relatively short time series of consumption data undermines the ability of tests that use the restrictions implied by the volatility bound to discriminate among different utility functions.

Date: 1992-07
Note: AP
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Citations: View citations in EconPapers (13)

Published as Journal of Finance, Vol. 70, February 1994, pp. 80-102.

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Journal Article: Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns (1994)
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