Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns / Stephen G. Cecchetti, Pok-sang Lam, Nelson C. Mark.

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Cecchetti, Stephen G

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Material type: Text

TextSeries: Technical Working Paper Series (National Bureau of Economic Research) ; no. t0124.Publication details: Cambridge, Mass. National Bureau of Economic Research 1992.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber t0124 (Browse shelf(Opens below))	Not For Loan

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July 1992.

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.