Implications of Security Market Data for Models of Dynamic Economies

56 Pages Posted: 26 Jan 2007  

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Date Written: May 1990

Abstract

We show how to use security market data to restrict the admissible region for means and standard deviations of intertemporal marginal rates of substitution (IMRS's) of consumers. Our approach is (i) nonparametric and applies to a rich class of models of dynamic economies; (ii) characterizes the duality between the mean-standard deviation frontier for IMRS's and the familiar mean-standard deviation frontier for asset returns; and (iii) exploits the restriction that IMRS's are positive random variables. The region provides a convenient summary of the sense in which asset market data are anomalous from the vantage point of intertemporal asset pricing theory.

Suggested Citation

Hansen, Lars Peter and Jagannathan, Ravi, Implications of Security Market Data for Models of Dynamic Economies (May 1990). NBER Working Paper No. t0089. Available at SSRN: https://ssrn.com/abstract=579768

Lars Peter Hansen (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Department of Economics ( email )

1101 E 58th ST
Chicago, IL 60637
United States
773-702-8170 (Phone)
773-702-8490 (Fax)

Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
429 Andersen Hall
Evanston, IL 60208
United States
847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Paper statistics

Downloads
50
Abstract Views
646