A statistical inquiry into the plausibility of recursive utility

Published

Journal Article

We use purely statistical methods to determine if the pricing kernel is the intertemporal marginal rate of substitution under recursive utility. We introduce a nonparametric Bayesian method that treats the pricing kernel as a latent variable and extracts it and its transition density from payoffs on 24 Fama-French portfolios, on bonds, and on payoffs that use conditioning information available when portfolios are formed. Our priors are formed from an examination of a Bansal-Yaron economy. Using both monthly data and annual data, we find that the data support recursive utility. © The Author 2007. Published by Oxford University Press.

Full Text

Cited Authors

  • Gallant, AR; Hong, H

Published Date

  • December 1, 2007

Published In

Volume / Issue

  • 5 / 4

Start / End Page

  • 523 - 559

Electronic International Standard Serial Number (EISSN)

  • 1479-8417

International Standard Serial Number (ISSN)

  • 1479-8409

Digital Object Identifier (DOI)

  • 10.1093/jjfinec/nbm013

Citation Source

  • Scopus