Approximate Equilibrium Asset Prices
AbstractArguing that total consumer wealth is unobservable, we invert the (approximate) consumption function to reconstruct, in a world with Kreps-Porteus generalized isoelastic preferences, (i) the wealth that supports the agents' observed consumption as an optimal outcome and (ii) the rate of return on the consumers' wealth portfolio. This allows us to (approximately) price assets solely as a function of their payoffs and of consumption--in both homoskedastic or heteroskedastic environments. We compare implied equilibrium returns on the wealth portfolio to observed stock market returns and gauge whether the stock market is a good proxy for unobserved aggregate wealth. Copyright 2011, Oxford University Press.
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Bibliographic InfoArticle provided by European Finance Association in its journal Review of Finance.
Volume (Year): 15 (2011)
Issue (Month): 1 ()
Other versions of this item:
- Fernando Restoy & Philippe Weil, 1995. "Approximate Equilibrium Asset Prices," Banco de Espaï¿½a Working Papers 9515, Banco de Espa�a.
- Fernando Restoy & Philippe Weil, 1998. "Approximate Equilibrium Asset Prices," Sciences Po publications 6611, Sciences Po.
- Fernando Restoy & Philippe Weil, 1998. "Approximate Equilibrium Asset Prices," NBER Working Papers 6611, National Bureau of Economic Research, Inc.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- G0 - Financial Economics - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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