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A test of the intertemporal asset pricing model

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Author Info
Rajnish Mehra
Edward C. Prescott

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Abstract

Restrictions that general equilibrium theory place upon average returns are found to be strongly violated by the U.S. data in the 1889–1978 period. This result is robust to model specification and measurement problems. We conclude that equilibrium models which are not Arrow-Debreu economies are needed to rationalize the large average equity premium that prevailed during the last 90 years.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 81.

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Date of creation: 1982
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Publication status: Published in Journal of Monetary Economics (Vol. 15, n.2, March 1985, pp.145-161)
Handle: RePEc:fip:fedmsr:81

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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.:
  1. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-40, April. [Downloadable!] (restricted)
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  2. Prescott, Edward C & Lucas, Robert E, Jr, 1972. "A Note on Price Systems in Infinite Dimensional Space," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 416-22, June. [Downloadable!] (restricted)
  3. Prescott, Edward C & Mehra, Rajnish, 1980. "Recursive Competitive Equilibrium: The Case of Homogeneous Households," Econometrica, Econometric Society, vol. 48(6), pages 1365-79, September. [Downloadable!] (restricted)
  4. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-27, May. [Downloadable!] (restricted)
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  5. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-74, May. [Downloadable!] (restricted)
  6. Donaldson, John B & Mehra, Rajnish, 1984. "Comparative Dynamics of an Equilibrium Intertemporal Asset Pricing Model," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 491-508, July. [Downloadable!] (restricted)
  7. Brown, Donald J & Lewis, Lucinda M, 1981. "Myopic Economic Agents," Econometrica, Econometric Society, vol. 49(2), pages 359-68, March. [Downloadable!] (restricted)
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  8. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Kenneth B. Dunn & Kenneth J. Singleton, 1984. "Modeling the Term Structure of Interest Rates Under Nonseparable Utilityand Duriability of Goods," NBER Working Papers 1415, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. William D. Nordhaus & Steven N. Durlauf, 1982. "The Structure of Social Risk," Cowles Foundation Discussion Papers 648, Cowles Foundation, Yale University. [Downloadable!]
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