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Limited Asset Market Participation and the Elasticity of Intertemporal Substitution

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Author Info
Annette Vissing-Jorgensen
Abstract

The paper presents empirical evidence based on the US Consumer Expenditure Survey that accounting for limited asset market participation is important for estimating the elasticity of intertemporal substitution (EIS). Differences in estimates of the EIS between assetholders and non-assetholders are large and statistically significant. This is the case whether estimating the EIS based on the Euler equation for stock index returns or the Euler equation for T-bills, in each case distinguishing between assetholders and non-assetholders as best possible. Estimates of the EIS are around 0.3-0.4 for stockholders and around 0.8-1 for bondholders, and are larger for households with larger asset holdings within these two groups.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8896.

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Date of creation: Apr 2002
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Handle: RePEc:nbr:nberwo:8896

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E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
G1 - Financial Economics - - General Financial Markets

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  12. Alon Brav & George M. Constantinides & Christopher C. Geczy, 1999. "Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence," CRSP working papers 505, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
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  14. Annette Vissing-Jorgensen, 2000. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," Econometric Society World Congress 2000 Contributed Papers 1102, Econometric Society. [Downloadable!]
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