Universität zu Köln

Grammig, Joachim and Kuechlin, Eva-Maria (2018). A two-step indirect inference approach to estimate the long-run risk asset pricing model. J. Econom., 205 (1). S. 6 - 34. LAUSANNE: ELSEVIER SCIENCE SA. ISSN 1872-6895

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Abstract

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 macro-economic 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 reassessment 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. (C) 2018 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Grammig, Joachim UNSPECIFIED UNSPECIFIED UNSPECIFIED Kuechlin, Eva-Maria UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-181937
DOI:	10.1016/j.jeconom.2018.03.003
Journal or Publication Title:	J. Econom.
Volume:	205
Number:	1
Page Range:	S. 6 - 34
Date:	2018
Publisher:	ELSEVIER SCIENCE SA
Place of Publication:	LAUSANNE
ISSN:	1872-6895
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language CONSUMPTION-BASED EXPLANATION; EQUITY PREMIUM; SUBSTITUTION; MOMENTS Multiple languages Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/18193