A two-step indirect inference approach to estimate the long-run risk asset pricing model
- The long-run consumption risk model provides a theoretically appealing explanation for prominent asset pricing puzzles, but its intricate structure presents a challenge for econometric analysis. This paper proposes a two-step indirect inference approach that disentangles the estimation of the model's macroeconomic dynamics and the investor's preference parameters. A Monte Carlo study explores the feasibility and efficiency of the estimation strategy. We apply the method to recent U.S. data and provide a critical re-assessment of the long-run risk model's ability to reconcile the real economy and financial markets. This two-step indirect inference approach is potentially useful for the econometric analysis of other prominent consumption-based asset pricing models that are equally difficult to estimate.
Author: | Joachim Grammig, Eva-Maria Küchlin |
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URN: | urn:nbn:de:hebis:30:3-438582 |
URL: | https://ssrn.com/abstract=3038722 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 572 |
Series (Serial Number): | CFS working paper series (572) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2017 |
Year of first Publication: | 2017 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2017/10/17 |
Tag: | asset pricing; indirect inference estimation; longrun risk |
Issue: | May 27, 2017 |
Page Number: | 76 |
HeBIS-PPN: | 419160841 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |