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An estimation of economic models with recursive preferences

Chen, Xiaohong and Favilukis, Jack and Ludvigson, Sydney C. (2013) An estimation of economic models with recursive preferences. Quantitative Economics, 4 (1). pp. 39-83. ISSN 1759-7323

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Identification Number: 10.3982/QE97

Abstract

This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the unobservable aggregate wealth return. Our empirical results indicate that the estimated relative risk aversion parameter ranges from 17 to 60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above 1. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the Center for Research in Security Prices value-weighted stock market return, suggesting that the return to human wealth is negatively correlated with the aggregate stock market return.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2013 The Authors
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 23 Apr 2013 10:40
Last Modified: 18 Jun 2014 11:34
Funders: National Science Foundation, Alfred P. Sloan Foundation
URI: http://eprints.lse.ac.uk/id/eprint/37392

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