Risk Aversion vs. Intertemporal Substitution: Identification Failure in the Intertemporal Consumption CAPM
Is the risk aversion parameter in the simple intertemporal consumption CAPM "small" as in Hansen and Singleton (1982,1983), or is it that its reciprocal, the intertemporal elasticity of substitution, is small, as in Hall (1988)? This paper attributes the disparate estimates of this fundamental parameter not only to failures of instrument admissibility as do Hall (1988) and Hansen-Singleton (1996), but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. One natural identifying restriction from the risk aversion perspective leads to estimates that are low and stable over both time and model specifications. An equally natural identifying restriction from the intertemporal substitution perspective leads to estimates of the reciprocal that are also low and stable.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
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.
|Date of creation:||Aug 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
More information through EDIRC
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.:
- Prescott, Edward C., 1986.
"Theory ahead of business-cycle measurement,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 25(1), pages 11-44, January.
- Heaton, John & Lucas, Deborah J, 1996.
"Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing,"
Journal of Political Economy,
University of Chicago Press, vol. 104(3), pages 443-87, June.
- John Heaton & Deborah Lucas, 1993. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," NBER Working Papers 4249, National Bureau of Economic Research, Inc.
- Wheatley, Simon, 1988. "Some tests of the consumption-based asset pricing model," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 193-215, September.
- Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
- Phillip A. Braun & George M. Constantinides & Wayne E. Ferson, 1992.
"Time Nonseparability in Aggregate Consumption: International Evidence,"
NBER Working Papers
4104, National Bureau of Economic Research, Inc.
- Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
- Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
- 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.
- Luttmer, Erzo G J, 1996. "Asset Pricing in Economies with Frictions," Econometrica, Econometric Society, vol. 64(6), pages 1439-67, November.
- Ferson, Wayne E. & Constantinides, George M., 1991.
"Habit persistence and durability in aggregate consumption: Empirical tests,"
Journal of Financial Economics,
Elsevier, vol. 29(2), pages 199-240, October.
- Wayne E. Ferson & George M. Constantinides, 1991. "Habit Persistence and Durability in Aggregate Consumption: Empirical Tests," NBER Working Papers 3631, National Bureau of Economic Research, Inc.
- Heaton, John, 1993. "The Interaction between Time-Nonseparable Preferences and Time Aggregation," Econometrica, Econometric Society, vol. 61(2), pages 353-85, March.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
- Lars Peter Hansen & Kenneth J. Singleton, 1997.
"Efficient Estimation of Linear Asset Pricing Models with Moving-Average Errors,"
NBER Technical Working Papers
0086, National Bureau of Economic Research, Inc.
- Hansen, Lars Peter & Singleton, Kenneth J, 1996. "Efficient Estimation of Linear Asset-Pricing Models with Moving Average Errors," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 53-68, January.
- Breeden, Douglas T & Gibbons, Michael R & Litzenberger, Robert H, 1989. " Empirical Tests of the Consumption-Oriented CAPM," Journal of Finance, American Finance Association, vol. 44(2), pages 231-62, June.
When requesting a correction, please mention this item's handle: RePEc:uia:iowaec:98-08. 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: (John Solow)
If references are entirely missing, you can add them using this form.