COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1883 An Estimation of Economic Models with Recursive Preferences Xiaohong Chen, Jack Fuvilukis and Sydney Ludvigson December 2012 This paper presents estimates of key preference parameters of the
Epstein and Zin (1989, 1991) and Weil (1989) (EZW) 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 17-60, with higher values for aggregate consumption than for stockholder
consumption, while the estimated elasticity of intertemporal substitution is above one. In
addition, the estimated model-implied aggregate wealth return is found to be weakly
correlated with the CRSP value-weighted stock market return, suggesting that the return to
human wealth is negatively correlated with the aggregate stock market return. |
