Time-Series Tests of a Non-Expected-Utility Model of Asset Pricing
This paper provides two alternative estimation and testing procedures of a
representative-agent model of asset pricing which relies on a particular
parametrization of non-expected-utility preferences. The first is based on
maximum-likelihood estimates, supplemented with an explicit model of time
varying first and second moments (where the time-variation of second moments in
modelled with an ARCH-Autoregressive Conditionally Heteroskedastic-process);
the second is based on generalized-method-of moments estimates. We perform our
tests on a data set that includes monthly observations of rates of return on US
stock prices and US consumption of nondurables and services. Our results are
directly comparable to a test of the dynamic capital asset pricing model
performed by Hansen and Singleton (1983), and to a recent test of the model
studied here performed by Epstein and Zin (1989).
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