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.
N1 - Funding Information:
We thank workshop and seminar participants at the London School of Economics, University of Liverpool, University of Stirling, the Univrsiteies of Essex, Indiana, IowMissouari, , and Pittsburgh, Queen Mary WestŽ eld College, the Federal Reserve Bank of St. Louis, and the European Finance Association Meetings in 1996. We especially thank Gene Svin,a Narayana Kocherlakota, Beth Ingram, Lars Hsen,aGnogeer Neumann, GeorgTaechuen, and Pete Summers for discussions and suggestions during the course of this project. Comments by anonymous referees were helpful in substantially expanding the scope of the article and also led to the inclusion of Figures 4 and 5. We thaknthe Uivrsitney of Chicago Press for permission to reprint sections of Hansen and Singleton (1983) and Hall (1988), (© 1983 and 1988 by The Univr-e sity of Chicago: all rights reserved). The vies expwressed are ours and do not necessarily represent the views of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Amlan Roy was a recipient of an ESRC Research Fellowship (1995–1998) during part of this project.
PY - 2001/10
Y1 - 2001/10
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
SN - 0735-0015
VL - 19
SP - 395
EP - 403
JO - Journal of Business and Economic Statistics
JF - Journal of Business and Economic Statistics
IS - 4
ER -