An estimation of economic models with recursive preferences

Xiaohong Chen, Jack Favilukis, Sydney C. Ludvigson

    Research output: Contribution to journalArticlepeer-review


    This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the unobservable aggregate wealth return. Our empirical results indicate that the estimated relative risk aversion parameter ranges from 17 to 60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above 1. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the Center for Research in Security Prices value-weighted stock market return, suggesting that the return to human wealth is negatively correlated with the aggregate stock market return.

    Original languageEnglish (US)
    Pages (from-to)39-83
    Number of pages45
    JournalQuantitative Economics
    Issue number1
    StatePublished - Mar 2013


    • Consumption based asset pricing
    • Limited stock market participation
    • Semiparametric estimation

    ASJC Scopus subject areas

    • Economics and Econometrics


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