Department of Economics
Ohio State University
1945 North High Street
Columbus, OH 43210-1172
NBER Working Papers and Publications
|January 1998||Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?|
with Stephen G. Cecchetti, Nelson C. Mark: w6354
We study a Lucas asset pricing model that is standard in all respects representative agent's subjective beliefs about endowment growth are distorted. Using constant-relative-risk-aversion (CRRA) utility a CRRA coefficient below ten that exhibit, on average, excessive pessimism over expansions and excessive optimism over" contractions, our model is able to match the first and second moments of the equity premium and" risk-free rate, as well as the persistence and predictability of excess returns found in the data."
Published: Cecchetti, Stephen G., Pok-sang Lam and Nelson C. Mark. "Asset Pricing With Distorted Beliefs: Are Equity Returns To Good To Be True?," American Economic Review, 2000, v90(4,Sep), 787-805. citation courtesy of
|July 1992||Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns|
with Stephen G. Cecchetti, Nelson C. Mark: t0124
The Euler equations derived from a broad range of intertemporal asset pricing models, together with the first two unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. We develop and implement statistical tests of these lower bound restrictions. We conclude that the availability of relatively short time series of consumption data undermines the ability of tests that use the restrictions implied by the volatility bound to discriminate among different utility functions.
Published: Journal of Finance, Vol. 70, February 1994, pp. 80-102.
|June 1991||The Equity Premium and the Risk Free Rate: Matching the Moments|
with Stephen G. Cecchetti, Nelson C. Clark: w3752
This paper investigates the ability of a representative agent model with time separable utility to explain the mean vector and the covariance matrix of the risk free interest rate and the return to leveraged equity in the stock market. The paper generalizes the standard calibration methodology by accounting for the uncertainty in both the sample moments to be explained and the estimated parameters to which the model is calibrated. We develop a testing framework to evaluate the model's ability to match the moments of the data. We study two forms of the model, both of which treat leverage in a manner consistent with the data. In the first, dividends explicitly represent the flow that accrues to the owner of the equity, and they are discounted by the marginal rate of intertemporal substitutio...
Published: Journal of Monetary Economics, vol. 31, no. 1, p. 21-46, February 1993 citation courtesy of
|November 1988||Mean Reversion in Equilibrium Asset Prices|
with Stephen G. Cecchetti, Nelson C. Mark: w2762
Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors display only a moderate degree of risk aversion, commonly used measures of mean reversion in stock prices calculated from actual returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.
Published: American Economic Review, Vol. 80, No. 3, pp. 398-418, (June 1990). citation courtesy of