Risk aversion versus intertemporal substitution: A case study of identification failure in the intertemporal consumption capital asset pricing model

Christopher J. Neely, Roy Amlan, Charles H. Whiteman

Research output: Contribution to journalArticle

33 Citations (Scopus)

Abstract

Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model "small" as stated by Hansen and Singleton or is its reciprocal - the intertemporal elasticity of substitution - small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case.

Original languageEnglish (US)
Pages (from-to)395-403
Number of pages9
JournalJournal of Business and Economic Statistics
Volume19
Issue number4
DOIs
StatePublished - Oct 1 2001

Fingerprint

Capital Asset Pricing Model
capital assets
Risk Aversion
substitution
Substitution
pricing
Estimate
assets
Admissibility
Elasticity
Attribute
Restriction
Intertemporal substitution
Capital asset pricing model
Risk aversion

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

@article{b8948ab2fa3248d1b65d7529d91540ae,
title = "Risk aversion versus intertemporal substitution: A case study of identification failure in the intertemporal consumption capital asset pricing model",
abstract = "Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model {"}small{"} as stated by Hansen and Singleton or is its reciprocal - the intertemporal elasticity of substitution - small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case.",
author = "Neely, {Christopher J.} and Roy Amlan and Whiteman, {Charles H.}",
year = "2001",
month = "10",
day = "1",
doi = "10.1198/07350010152596646",
language = "English (US)",
volume = "19",
pages = "395--403",
journal = "Journal of Business and Economic Statistics",
issn = "0735-0015",
publisher = "American Statistical Association",
number = "4",

}

TY - JOUR

T1 - Risk aversion versus intertemporal substitution

T2 - A case study of identification failure in the intertemporal consumption capital asset pricing model

AU - Neely, Christopher J.

AU - Amlan, Roy

AU - Whiteman, Charles H.

PY - 2001/10/1

Y1 - 2001/10/1

N2 - Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model "small" as stated by Hansen and Singleton or is its reciprocal - the intertemporal elasticity of substitution - small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case.

AB - Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model "small" as stated by Hansen and Singleton or is its reciprocal - the intertemporal elasticity of substitution - small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case.

UR - http://www.scopus.com/inward/record.url?scp=0039571008&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0039571008&partnerID=8YFLogxK

U2 - 10.1198/07350010152596646

DO - 10.1198/07350010152596646

M3 - Article

AN - SCOPUS:0039571008

VL - 19

SP - 395

EP - 403

JO - Journal of Business and Economic Statistics

JF - Journal of Business and Economic Statistics

SN - 0735-0015

IS - 4

ER -