Evaluating asset pricing models with limited commitment using household consumption data
By: Dirk Krueger, Hanno Lustig, Fabrizio Perri.
Contributors: Lustig, Hanno.; Perri, Fabrizio.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13650; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13650.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts.  Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption growth rate and the growth rate of consumption of the set of households that do not face binding enforcement constraints.  These unconstrained households have lower consumption growth rates than all other households in the economy.  We use household data on consumption growth from the U.S.  Consumer Expenditure Survey to identify unconstrained households, to estimate the pricing kernel implied by these models and evaluate their performance in pricing aggregate risk.  We find that for high values of the relative risk aversion coefficient, the limited enforcement pricing kernel generates a market price of risk that is substantially closer to the data than the one obtained using the standard complete markets asset pricing kernel"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/5/2008.

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