Substitution, Risk Aversion and the Temporal Behaviour of Consumption and Asset Returns II: An Empirical Analysis
AbstractThis paper investigates the testable restrictions on the time-series behaviour of consumption and asset returns implied by the consumption/portfolio choice problem of an infinitely-lived, representative agent. Intertemporal preferences are characterized by utility functions that generalize conventional, time-additive, expected utility. These generalizations of expected utility, allow for a clear separation of observable behaviour attributable to risk aversion and to intertemporal substitution, and also provide simple nested-tests of the expected utility hypothesis. Using monthly New York Stock Exchange returns data and consumption measured with either per capita expenditures on nondurables or nondurables and services, the expected utility model is rejected. The over-identifying restrictions implied by the non-expected utility model are tested and do not, in general, lead to rejections of the theory.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 698.
Length: 54 pages
Date of creation: 1987
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Aiyagari, S. Rao & Gertler, Mark, 1991.
"Asset returns with transactions costs and uninsured individual risk,"
Journal of Monetary Economics,
Elsevier, vol. 27(3), pages 311-331, June.
- S Rao Aiyagari & Mark Gertler, 1997. "Asset Returns with transaction costs and uninsured individual risk," Levine's Working Paper Archive 648, David K. Levine.
- S. Rao Aiyagari & Mark Gertler, 1990. "Asset Returns with Transactions Cost and Uninsured Risk: A Stage III Exercise," NBER Working Papers 3481, National Bureau of Economic Research, Inc.
- Massimo Guidolin, 2005.
"Pessimistic beliefs under rational learning: quantitative implications for the equity premium puzzle,"
2005-005, Federal Reserve Bank of St. Louis.
- Guidolin, Massimo, 2006. "Pessimistic beliefs under rational learning: Quantitative implications for the equity premium puzzle," Journal of Economics and Business, Elsevier, vol. 58(2), pages 85-118.
- Alberto Giovannini & Philippe Weil, 1989. "Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model," NBER Working Papers 2824, National Bureau of Economic Research, Inc.
- Laurian Lungu & Patrick Minford, 2006.
"Explaining The Equity Risk Premium,"
University of Manchester, vol. 74(6), pages 670-700, December.
- Lettau, Martin & Uhlig, Harald, 1997.
"Preferences, Consumption Smoothing, and Risk Premia,"
CEPR Discussion Papers
1678, C.E.P.R. Discussion Papers.
- Lettau, M. & Uhlig, H.F.H.V.S., 1997. "Preferences, Consumption Smoothing and Risk Premia," Discussion Paper 1997-60, Tilburg University, Center for Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock).
If references are entirely missing, you can add them using this form.