Department of Economics
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P.O. Box 208268
New Haven, CT 06520-8268
Institutional Affiliation: Yale University
Information about this author at RePEc
NBER Working Papers and Publications
|June 2011||An Estimation of Economic Models with Recursive Preferences|
with Jack Favilukis, Sydney C. Ludvigson: w17130
This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) (EZW) 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 17-60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above one. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the CRSP value-weighted stock market return, suggesting that the return to human wealth is negatively corr...
“An Estimation of Recursive Preferences,” (with Jack Favilukis and Xiaohong Chen), in Quantitative Economics (forthcoming). citation courtesy of
|May 2004||Land of Addicts? An Empirical Investigation of Habit-Based Asset Pricing Behavior|
with Sydney C. Ludvigson: w10503
This paper studies the ability of a general class of habit-based asset pricing models to match the conditional moment restrictions implied by asset pricing theory. We treat the functional form of the habit as unknown, and to estimate it along with the rest of the model's finite dimensional parameters. Using quarterly data on consumption growth, assets returns and instruments, our empirical results indicate that the estimated habit function is nonlinear, the habit formation is better described as internal rather than external, and the estimated time-preference parameter and the power utility parameter are sensible. In addition, the estimated habit function generates a positive stochastic discount factor (SDF) proxy and performs well in explaining cross-sectional stock return data . We find ...
Published: Xiaohong Chen & Sydney C. Ludvigson, 2009. "Land of addicts? an empirical investigation of habit-based asset pricing models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1057-1093.