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| Author: | Epstein, L. G. Zin, S. E. |
| Title: | Substitution, risk aversion, and the temporal behavior of consumption and asset returns: An empirical analysis |
| Journal: | Journal of Political Economy
1991 : APR, VOL. 99:2, p. 263-286 |
| Index terms: | CONSUMPTION CONSUMER BEHAVIOUR ASSETS RATE OF RETURN UTILITY ASSESSMENT RISK DYNAMIC MODELS |
| Language: | eng |
| Abstract: | Testable restrictions on the time-series behaviour of consumption and asset returns are investigated implied by a representative agent model in which intertemporal preferences are represented by utility functions that generalize conventional, time-additive, expected utility. This model allows a separation of observable behaviour attributable to risk aversion and to intertemporal substiutiton. Further, it nests the predictions of both the consumption CAPM and the static CAM, and it allows direct tests of the expected utility hypothesis. It is stated that the performance of the non-expected utility model and tests of the expected utility hypothesis are sensitive to the choice of both consumption measure and instrumental variables. |
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