TY - JOUR
AU - Grossman,Sanford J.
AU - Melino,Angelo
AU - Shiller,Robert J.
TI - Estimating the Continuous Time Consumption Based Asset Pricing Model
JF - National Bureau of Economic Research Working Paper Series
VL - No. 1643
PY - 1985
Y2 - June 1985
DO - 10.3386/w1643
UR - http://www.nber.org/papers/w1643
L1 - http://www.nber.org/papers/w1643.pdf
N1 - Author contact info:
Sanford J. Grossman
QFS Asset Management, L.P.
10 Glenville Street
Greenwich, CT 06831
Tel:
Fax:
E-Mail: sgrossman@quantholdings.com
Angelo Melino
E-Mail: angelo.melino@utoronto.ca
Robert J. Shiller
Yale University, Cowles Foundation
Box 208281
30 Hillhouse Avenue
New Haven, CT 06520-8281
Tel:
Fax:
E-Mail: robert.shiller@yale.edu
AB - The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or unit average of the consumption flow is available. In our paper, we show how to estimate the parameters of interest consistently from the available data by maximum likelihood. We estimate the market's degree of relative risk aversion and the instantaneous covariances of asset yields and consumption using six different data sets. We also test the model's overidentifying restrictions.
ER -