A Statistical Inquiry into the Plausibility of Recursive Utility
AbstractWe use purely statistical methods to determine if the pricing kernel is the intertemporal marginal rate of substitution under recursive utility. We introduce a nonparametric Bayesian method that treats the pricing kernel as a latent variable and extracts it and its transition density from payoffs on 24 Fama-French portfolios, on bonds, and on payoffs that use conditioning information available when portfolios are formed. Our priors are formed from an examination of a Bansal-Yaron economy. Using both monthly data and annual data, we find that the data support recursive utility. Copyright , Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.
Volume (Year): 5 (2007)
Issue (Month): 4 (Fall)
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- Ron Gallant & Raffaella Giacomini & Giuseppe Ragusa, 2013.
"Generalized method of moments with latent variables,"
CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies
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- Jiang, Renna & Manchanda, Puneet & Rossi, Peter E., 2009. "Bayesian analysis of random coefficient logit models using aggregate data," Journal of Econometrics, Elsevier, Elsevier, vol. 149(2), pages 136-148, April.
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