# Implications of Security Market Data for Models of Dynamic Economies

@article{Hansen1991ImplicationsOS, title={Implications of Security Market Data for Models of Dynamic Economies}, author={Lars Peter Hansen and Ravi Jagannathan}, journal={Journal of Political Economy}, year={1991}, volume={99}, pages={225 - 262} }

We show how to use security market data to restrict the admissible region for means and standard deviations of intertemporal marginal rates of substitution (IMRSs) of consumers. Our approach (i) is nonparametric and applies to a rich class of models of dynamic economies, (ii) characterizes the duality between the mean--standard deviation frontier for IMRSs and the familiear mean- standard deviation frontier for asset returns, and (iii) exploits the restriction that IMRSs are positive random… Expand

#### 1,669 Citations

Studying the Implications of Consumption and Asset Return Data for Stochastic Discount Factors in Incomplete International Economies

- Economics
- 2016

We develop an incomplete markets framework to synthesize domestic and foreign stochastic discount factors (SDFs) that are consistent with limited international risk sharing. The funda- mental… Expand

Asset Pricing Explorations for Macroeconomics

- Economics
- NBER Macroeconomics Annual
- 1992

In this paper we argue that financial data are a useful proving ground for macroeconomic models, and we explore the channels that link asset market data to such models. We use Hansen and… Expand

Asset Pricing in the Presence of Background Risk

- Economics
- 2010

We assume an economy in which an agent faces, in addition to uncertainty about the return on risky asset holdings, an independent non-hedgeable zero-mean background risk. Within this framework, the… Expand

Asset pricing in economies with frictions

- Economics
- 1996

This paper examines how proportional transaction costs, short-sale constraints, and margin requirements affect inferences based on asset return data about intertemporal marganil rates of substitution… Expand

Robust Pricing of Fixed Income Securities

- Economics
- 2016

We analyze a dynamic investment problem with interest rate risk and ambiguity. After deriving the optimal terminal wealth and investment policy, we expand our model into a robust general equilibrium… Expand

On the Asset Market View of Exchange Rates

- Economics
- 2020

We offer a critique of the popular notion that the log-change of the real exchange rate equals the log-difference between the IMRSs of economically distinct agents in two economies. Contrary to… Expand

Risk-Sensitive Real Business

- 1998

This paper considers the business cycle, asset pricing, and welfare eeects of increased risk aversion, while holding intertemporal substitution preferences constant. I show that increasing risk… Expand

The Time Variation of Risk and Return in Foreign Exchange Markets: A General Equilibrium Perspective

- Economics, Mathematics
- 1994

This paper investigates the statistical properties of high frequency nominal exchange rates and forward premiums in the context of a dynamic two-country general equilibrium model. Primary focus is on… Expand

ASSET PRICING IN DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODELS WITH INDETERMINACY

- Economics
- Macroeconomic Dynamics
- 2007

We explore asset pricing in the context of the one-sector Benhabib-Farmer-Guo (BFG) model with increasing returns to scale in production and compare our results with financial implications of the… Expand

Incomplete Markets and Security Prices: Do Asset‐Pricing Puzzles Result from Aggregation Problems?

- Economics
- 1999

This paper investigates Euler equations involving security prices and household-level consumption data. It provides a useful complement to many existing studies of consumption-based asset pricing… Expand

#### References

SHOWING 1-10 OF 67 REFERENCES

THE ROLE OF CONDITIONING INFORMATION IN DEDUCING TESTABLE RESTRICTIONS IMPLIED BY DYNAMIC ASSET PRICING MODELS1

- Economics
- 1987

The purpose of this paper is to investigate testable implications of equilibrium asset pricing models. The authors derive a general representation for asset prices that displays the role of… Expand

THE EQUITY PREMIUM A Puzzle

- Economics
- 1985

Abstract Restrictions that a class of general equilibrium models place upon the average returns of equity and Treasury bills are found to be strongly violated by the U.S. data in the 1889–1978… Expand

Modeling the term structure of interest rates under non-separable utility and durability of goods

- Economics
- 1986

Abstract The term structure relations implied by a model in which preferences are non-separable functions of the service flows from two goods are investigated. The parameters characterizing… Expand

The empirical foundations of the arbitrage pricing theory

- Economics
- 1988

Abstract This paper uses maximum-likelihood factor analysis of large cross-sections to examine the validity of the arbitrage pricing theory (APT). We are unable to explain the expected returns on… Expand

Risk and Return in an Equilibrium Apt: Application of a New Test Methodology

- Economics
- 1988

We use an asymptotic principal Components technique to estimate pervasive factors influencing asset returns and to test the restrictions imposed by static and intertemporal equilibrium versions of… Expand

Multivariate proxies and asset pricing relations: Living with the Roll critique

- Economics
- 1987

Abstract A framework is developed in which inferences can be made about the validity of an equilibrium asset pricing relation, even though the central aggregate in this relation is unobservable. A… Expand

Using conditional moments of asset payoffs to infer the volatility of intertemporal marginal rates of substitution

- Mathematics
- 1990

Previously Hansen and Jagannathan (1990a) derived and computed mean-standard deviation frontiers for intertemporal marginal rates of substitution (IMRS) implied by asset market data. These frontiers… Expand

Intertemporally Dependent Preferences and the Volatility of Consumption and Wealth

- Economics
- 1989

In this article we construct a model in which a consumer’s utility depends on the consumption history We describe a general equilibrium framework similar to Cox, Ingersoll, and Ross (1985a). A simple… Expand

Mean-Variance Theory in Complete Markets

- Economics
- 1982

Two paradigms in the pricing of risky assets are the "complete markets" model of Arrow and Debreu and mean-variance pricing as embodied in the capital asset pricing model (CAPM). The former is… Expand

Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis

- Economics
- Journal of Political Economy
- 1991

This paper investigates the testable restrictions on the time-series behavior of consumption and asset returns implied by a representative agent model in which intertemporal preferences are… Expand