Approximate Equilibrium Asset Prices - Sciences Po Access content directly
Journal Articles Review of Finance Year : 2011

Approximate Equilibrium Asset Prices

Abstract

Arguing that total consumer wealth is unobservable, we invert the (approximate) consumption function to reconstruct, in a world with Kreps-Porteus generalized isoelastic preferences, i) the wealth that supports the agents’ observed consumption as an optimal outcome and ii) the rate of return on the consumers’ wealth portfolio. This allows us to (approximately) price assets solely as a function of their payoffs and of consumption — in both homoskedastic or heteroskedastic environments. We compare implied equilibrium returns on the wealth portfolio to observed stock market returns and gauge whether the stock market is a good proxy for unobserved aggregate wealth.
No file

Dates and versions

hal-03415503 , version 1 (04-11-2021)

Identifiers

Cite

Fernando Restoy, Philippe Weil. Approximate Equilibrium Asset Prices. Review of Finance, 2011, 15 (1), pp.1 - 28. ⟨hal-03415503⟩

Collections

SCIENCESPO OFCE
16 View
0 Download

Share

Gmail Facebook X LinkedIn More