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 agentsâ observed consumption as an optimal outcome and ii) the rate of return on the consumersâ wealth portfolio. This allows us to (approximately) price assets solely as a function of their payoffs and of consumption â 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.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 9515.
Length: 27 pages
Date of creation: 1995
Date of revision:
consumption ; prices;
Other versions of this item:
- Fernando Restoy & Philippe Weil, 1998. "Approximate Equilibrium Asset Prices," NBER Working Papers 6611, National Bureau of Economic Research, Inc.
- Fernando Restoy & Philippe Weil, 1998. "Approximate Equilibrium Asset Prices," Sciences Po publications 6611, Sciences Po.
- Fernando Restoy & Philippe Weil, 2011. "Approximate Equilibrium Asset Prices," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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