skip to content
Euler equation errors Preview this item
ClosePreview this item
Checking...

Euler equation errors

Author: Martin Lettau; Sydney C Ludvigson; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, ©2005.
Series: Working paper series (National Bureau of Economic Research), working paper no. 11606.
Edition/Format:   Print book : EnglishView all editions and formats
Summary:
"Among the most important pieces of empirical evidence against the standard representative agent, consumption-based asset pricing paradigm are the formidable unconditional Euler equation errors the model produces for cross-sections of asset returns. Here we ask whether calibrated leading asset pricing models--specifically developed to address empirical puzzles associated with the standard paradigm--explain the  Read more...
Rating:

(not yet rated) 0 with reviews - Be the first.

Subjects
More like this

Find a copy online

Links to this item

Find a copy in the library

&AllPage.SpinnerRetrieving; Finding libraries that hold this item...

Details

Material Type: Internet resource
Document Type: Book, Internet Resource
All Authors / Contributors: Martin Lettau; Sydney C Ludvigson; National Bureau of Economic Research.
OCLC Number: 61841679
Notes: "September 2005."
Description: 35, [24] pages : illustrations ; 22 cm.
Series Title: Working paper series (National Bureau of Economic Research), working paper no. 11606.
Responsibility: Martin Lettau, Sydney C. Ludvigson.

Abstract:

"Among the most important pieces of empirical evidence against the standard representative agent, consumption-based asset pricing paradigm are the formidable unconditional Euler equation errors the model produces for cross-sections of asset returns. Here we ask whether calibrated leading asset pricing models--specifically developed to address empirical puzzles associated with the standard paradigm--explain the mispricing of the standard consumption-based model when evaluated on cross-sections of asset returns. We find that, in many cases, they do not. We present several results. First, we show that if the true pricing kernel that sets the unconditional Euler equation errors to zero is jointly lognormally distributed with aggregate consumption and returns, such a kernel will not rationalize the magnitude of the pricing errors generated by the standard model, particularly when the curvature of utility is high. Second, we show that leading asset pricing models also do not explain the significant mispricing of the standard paradigm for plausibly calibrated sets of asset returns, even though in those models the pricing kernel, returns, and consumption are not jointly lognormally distributed. Third, in contrast to the above results, we provide one example of a limited participation/incomplete markets model capable of explaining larger pricing errors for the standard model; but we also find many examples of such models, in which the consumption of marginal assetholders behaves quite differently from per capita aggregate consumption, that do not explain the large Euler equation errors of the standard representative agent model"--National Bureau of Economic Research web site.

Reviews

User-contributed reviews
Retrieving GoodReads reviews...
Retrieving DOGObooks reviews...

Tags

Be the first.
Confirm this request

You may have already requested this item. Please select Ok if you would like to proceed with this request anyway.

Linked Data


Primary Entity

<http://www.worldcat.org/oclc/61841679> # Euler equation errors
    a schema:CreativeWork, schema:Book ;
   library:oclcnum "61841679" ;
   library:placeOfPublication <http://id.loc.gov/vocabulary/countries/mau> ;
   library:placeOfPublication <http://experiment.worldcat.org/entity/work/data/20649579#Place/cambridge_mass> ; # Cambridge, Mass.
   schema:about <http://id.loc.gov/authorities/subjects/sh2009121704> ; # Consumption (Economics)--Econometric models
   schema:about <http://experiment.worldcat.org/entity/work/data/20649579#Topic/okonometrisches_modell> ; # Ökonometrisches Modell
   schema:about <http://id.worldcat.org/fast/819074> ; # Assets (Accounting)--Prices--Econometric models
   schema:about <http://experiment.worldcat.org/entity/work/data/20649579#Topic/assets_accounting_prices_econometric_models> ; # Assets (Accounting)--Prices--Econometric models
   schema:about <http://id.worldcat.org/fast/876457> ; # Consumption (Economics)--Econometric models
   schema:bookFormat bgn:PrintBook ;
   schema:contributor <http://viaf.org/viaf/135446122> ; # National Bureau of Economic Research.
   schema:contributor <http://viaf.org/viaf/62494801> ; # Sydney C. Ludvigson
   schema:copyrightYear "2005" ;
   schema:creator <http://viaf.org/viaf/57672529> ; # Martin Lettau
   schema:datePublished "2005" ;
   schema:description ""Among the most important pieces of empirical evidence against the standard representative agent, consumption-based asset pricing paradigm are the formidable unconditional Euler equation errors the model produces for cross-sections of asset returns. Here we ask whether calibrated leading asset pricing models--specifically developed to address empirical puzzles associated with the standard paradigm--explain the mispricing of the standard consumption-based model when evaluated on cross-sections of asset returns. We find that, in many cases, they do not. We present several results. First, we show that if the true pricing kernel that sets the unconditional Euler equation errors to zero is jointly lognormally distributed with aggregate consumption and returns, such a kernel will not rationalize the magnitude of the pricing errors generated by the standard model, particularly when the curvature of utility is high. Second, we show that leading asset pricing models also do not explain the significant mispricing of the standard paradigm for plausibly calibrated sets of asset returns, even though in those models the pricing kernel, returns, and consumption are not jointly lognormally distributed. Third, in contrast to the above results, we provide one example of a limited participation/incomplete markets model capable of explaining larger pricing errors for the standard model; but we also find many examples of such models, in which the consumption of marginal assetholders behaves quite differently from per capita aggregate consumption, that do not explain the large Euler equation errors of the standard representative agent model"--National Bureau of Economic Research web site."@en ;
   schema:exampleOfWork <http://worldcat.org/entity/work/id/20649579> ;
   schema:inLanguage "en" ;
   schema:isPartOf <http://experiment.worldcat.org/entity/work/data/20649579#Series/working_paper_series_national_bureau_of_economic_research> ; # Working paper series (National Bureau of Economic Research) ;
   schema:isPartOf <http://experiment.worldcat.org/entity/work/data/20649579#Series/nber_working_paper_paper_series> ; # NBER working paper paper series ;
   schema:name "Euler equation errors"@en ;
   schema:productID "61841679" ;
   schema:publication <http://www.worldcat.org/title/-/oclc/61841679#PublicationEvent/cambridge_mass_national_bureau_of_economic_research_2005> ;
   schema:publisher <http://experiment.worldcat.org/entity/work/data/20649579#Agent/national_bureau_of_economic_research> ; # National Bureau of Economic Research
   schema:url <http://papers.nber.org/papers/w11606> ;
   schema:url <http://papers.nber.org/papers/w11606.pdf> ;
   wdrs:describedby <http://www.worldcat.org/title/-/oclc/61841679> ;
    .


Related Entities

<http://experiment.worldcat.org/entity/work/data/20649579#Agent/national_bureau_of_economic_research> # National Bureau of Economic Research
    a bgn:Agent ;
   schema:name "National Bureau of Economic Research" ;
    .

<http://experiment.worldcat.org/entity/work/data/20649579#Place/cambridge_mass> # Cambridge, Mass.
    a schema:Place ;
   schema:name "Cambridge, Mass." ;
    .

<http://experiment.worldcat.org/entity/work/data/20649579#Series/nber_working_paper_paper_series> # NBER working paper paper series ;
    a bgn:PublicationSeries ;
   schema:hasPart <http://www.worldcat.org/oclc/61841679> ; # Euler equation errors
   schema:name "NBER working paper paper series ;" ;
    .

<http://experiment.worldcat.org/entity/work/data/20649579#Series/working_paper_series_national_bureau_of_economic_research> # Working paper series (National Bureau of Economic Research) ;
    a bgn:PublicationSeries ;
   schema:hasPart <http://www.worldcat.org/oclc/61841679> ; # Euler equation errors
   schema:name "Working paper series (National Bureau of Economic Research) ;" ;
    .

<http://experiment.worldcat.org/entity/work/data/20649579#Topic/assets_accounting_prices_econometric_models> # Assets (Accounting)--Prices--Econometric models
    a schema:Intangible ;
   schema:hasPart <http://id.loc.gov/authorities/subjects/sh85008784> ;
   schema:name "Assets (Accounting)--Prices--Econometric models"@en ;
    .

<http://experiment.worldcat.org/entity/work/data/20649579#Topic/okonometrisches_modell> # Ökonometrisches Modell
    a schema:Intangible ;
   schema:name "Ökonometrisches Modell"@en ;
    .

<http://id.loc.gov/authorities/subjects/sh2009121704> # Consumption (Economics)--Econometric models
    a schema:Intangible ;
   schema:name "Consumption (Economics)--Econometric models"@en ;
    .

<http://id.worldcat.org/fast/819074> # Assets (Accounting)--Prices--Econometric models
    a schema:Intangible ;
   schema:name "Assets (Accounting)--Prices--Econometric models"@en ;
    .

<http://id.worldcat.org/fast/876457> # Consumption (Economics)--Econometric models
    a schema:Intangible ;
   schema:name "Consumption (Economics)--Econometric models"@en ;
    .

<http://viaf.org/viaf/135446122> # National Bureau of Economic Research.
    a schema:Organization ;
   schema:name "National Bureau of Economic Research." ;
    .

<http://viaf.org/viaf/57672529> # Martin Lettau
    a schema:Person ;
   schema:birthDate "1966" ;
   schema:familyName "Lettau" ;
   schema:givenName "Martin" ;
   schema:name "Martin Lettau" ;
    .

<http://viaf.org/viaf/62494801> # Sydney C. Ludvigson
    a schema:Person ;
   schema:birthDate "1964" ;
   schema:familyName "Ludvigson" ;
   schema:givenName "Sydney C." ;
   schema:name "Sydney C. Ludvigson" ;
    .


Content-negotiable representations

Close Window

Please sign in to WorldCat 

Don't have an account? You can easily create a free account.