TY  - JOUR
AU  - Krueger,Dirk
AU  - Lustig,Hanno
AU  - Perri,Fabrizio
TI  - Evaluating Asset Pricing Models with Limited Commitment using Household Consumption Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13650
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13650
L1  - http://www.nber.org/papers/w13650.pdf
N1  - Author contact info:
Dirk Krueger
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-6691
Fax: 215/573-2057
E-Mail: dkrueger@econ.upenn.edu

Hanno Lustig
UCLA Anderson School of Management
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-1011
Fax: 310/825-9528
E-Mail: hlustig@anderson.ucla.edu

Fabrizio Perri
University of Minnesota
Department of Economics
4-177 Hanson Hall
Minneapolis, MN 55455
Tel: 612/625-7504
Fax: 612/624-0209
E-Mail: fperri@umn.edu
AB  - We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption growth rate and the growth rate of consumption of the set of households that do not face binding enforcement constraints. These unconstrained households have lower consumption growth rates than all other households in the economy. We use household data on consumption growth from the U.S. Consumer Expenditure Survey to identify unconstrained households, to estimate the pricing kernel implied by these models and evaluate their performance in pricing aggregate risk. We find that for high values of the relative risk aversion coefficient, the limited enforcement pricing kernel generates a market price of risk that is substantially closer to the data than the one obtained using the standard complete markets asset pricing kernel.
ER  -