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| Author: | Scott, L. O. |
| Title: | Estimating the marginal rate of substitution in the intertemporal capital asset pricing model |
| Journal: | Review of Economics and Statistics
1989 : AUG, VOL. 71:3, p. 365-375 |
| Index terms: | CAPITAL ASSET PRICING ECONOMIC ANALYSIS ESTIMATION STOCK MARKETS |
| Language: | eng |
| Abstract: | A method for estimating the marginal rate of substitution (MRS) in the intertemporal capital asset pricing model is presented. The MRS is treated as unobservable and one-period returns are used to develop a method for moments estimator which is consistent. Consistency depends on both a large number of time observations and a large number of securities. In the last section, the estimates of the MRS are used to test whether stock prices are unbiased predictors of ex post market fundamentals. Estimations for ex post market fundamentals suggest that the stock market is frequently over-valued with respect to underlying market fundamentals. |
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