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Estimation of the consumption CAPM with imperfect sample separation information

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  • Andrei Semenov

    (York University, Canada)

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    Abstract

    We propose a consumption-based capital asset pricing model consumption (CAPM), in which the pricing kernel is calculated as the average of individuals' intertemporal marginal rates of substitution weighted by the probabilities of holding the asset in question. These probabilities are conditional on available imperfect sample separation information and are estimated simultaneously with the parameters of Euler equations. Using data from the US Consumer Expenditure Survey, we find that the consumption CAPM with probability-weighted agents yields a more precise estimate of the agent's risk aversion compared with the model, in which the available imperfect information on asset-holding status is erroneously regarded as a perfect sample separation indicator. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.344
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 13 (2008)
    Issue (Month): 4 ()
    Pages: 333-348

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    Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:4:p:333-348

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    Cited by:
    1. Basu, Parantap & Semenov, Andrei & Wada, Kenji, 2011. "Uninsurable risk and financial market puzzles," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1055-1089, October.

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