Market Frictions and Consumption-Based Asset Pricing
A fundamental equilibrium condition underlying most utility-based asset pricing models is the equilibration of intertemporal marginal rates of substitution. Previous empirical research, however, has found that the comovements of consumption and asset return data fail to satisfy the restrictions imposed by this equilibrium condition. In this paper, the authors examine whether market frictions can explain previous findings. Their results suggest that a combination of short-sale, borrowing, solvency, and trading cost frictions can drive a large enough wedge between intertemporal marginal rates of substitution so that the apparent violations may not be inconsistent with market equilibrium. Copyright 1995 by University of Chicago Press.
When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:v:103:y:1995:i:1:p:94-117. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.