CONSUMPTION-BASED ASSET PRICING WITH RECURSIVE UTILITY

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RADNIA MARJAN; PAHLAVANI MOSAYEB; SHAHIKI TASH MOHAMMAD NABI; ROSHAN REZA

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Journal Paper

Paper Information

Journal: IRANIAN JOURNAL OF ECONOMIC STUDIES Year:2016 | Volume:5 | Issue:1 Page(s): 65-78

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Information Journal Paper

Title

CONSUMPTION-BASED ASSET PRICING WITH RECURSIVE UTILITY

Author(s)

RADNIA MARJAN | PAHLAVANI MOSAYEB | SHAHIKI TASH MOHAMMAD NABI | ROSHAN REZA | Issue Writer Certificate

Keywords

ASSET-PRICING THEORY

BEHAVIORAL PARAMETERS

GENERAL METHOD OF MOMENT

RECURSIVE UTILITY

Abstract

In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the GENERAL METHOD OF MOMENT (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, RECURSIVE UTILITY permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of intertemporal substitution which are constrained to be equal to the inverse of each other for the traditional time-additive utility functions. Rather than using the stock market as a proxy for wealth, we constructed a more comprehensive return which is the weighted average of stock index return, labor wage growth (as a proxy for human capital return), housing return and deposit return. The empirical results demonstrate that the signs of the coefficient of the relative risk aversion and the intertemporal elasticity of substitution are the same, which means that investors have homogeneous attitudes toward the risk across the states of nature and the risk over time in Iran but different ones in their values. Therefore, the assumption that the relative risk aversion is equal to the reciprocal of the elasticity of substitution is not valid in Iran's stock market.

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APA: Copy

RADNIA, MARJAN, PAHLAVANI, MOSAYEB, SHAHIKI TASH, MOHAMMAD NABI, & ROSHAN, REZA. (2016). CONSUMPTION-BASED ASSET PRICING WITH RECURSIVE UTILITY. IRANIAN JOURNAL OF ECONOMIC STUDIES, 5(1), 65-78. SID. https://sid.ir/paper/331287/en

Vancouver: Copy

RADNIA MARJAN, PAHLAVANI MOSAYEB, SHAHIKI TASH MOHAMMAD NABI, ROSHAN REZA. CONSUMPTION-BASED ASSET PRICING WITH RECURSIVE UTILITY. IRANIAN JOURNAL OF ECONOMIC STUDIES[Internet]. 2016;5(1):65-78. Available from: https://sid.ir/paper/331287/en

IEEE: Copy

MARJAN RADNIA, MOSAYEB PAHLAVANI, MOHAMMAD NABI SHAHIKI TASH, and REZA ROSHAN, “CONSUMPTION-BASED ASSET PRICING WITH RECURSIVE UTILITY,” IRANIAN JOURNAL OF ECONOMIC STUDIES, vol. 5, no. 1, pp. 65–78, 2016, [Online]. Available: https://sid.ir/paper/331287/en

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