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Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns

Lars Peter Hansen and Kenneth J. Singleton
Journal of Political Economy
Vol. 91, No. 2 (Apr., 1983), pp. 249-265
Stable URL: http://www.jstor.org/stable/1832056
Page Count: 17
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Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns
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Abstract

This paper studies the time-series behavior of asset returns and aggregate consumption. Using a representative consumer model and imposing restrictions on preferences and the joint distribution of consumption and returns, we deduce a restricted log-linear time-series representation. Preference parameters for the representative agent are estimated and the implied restrictions are tested using postwar data.

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