Time Series Analysis
- Greene, William
- Large Sample Properties of Generalized Method of…
This paper applies the Iterated GMM procedure of Hansen and Singleton (1982) and Hamilton (1994) to the estimation of the Lucas’ Single Agent General Equilibrium Model, under different specifications for the assets’ sets, the instrumental variables and the representative investor’s preferences. The empirical results, over a sample of 39 years of observations, from 1959 to 1998, seem to confirm the weak evidence for the Lucas’ Model already emphasized in several papers in the financial literature. Estimates of the relative risk aversion coefficient appear to be generally low, usually not higher than 4. The time discount factor beta is generally higher than 0.99 but lower than one. A set of selected macro-economic factors seems to fare better than lagged return variables in explaining the cross-sectional variability of asset returns and the inter-temporal consumption profile of the representative American investor. The use of a CARA utility function leads to estimates of the sign of gamma that confirm the empirical evidence of wealth elasticity of demand for risky assets being lower than one. * Ph.D. candidate at the Stern School of Business. Please address comments to the author at the Leonard N. Stern School of Business, New York University, Kaufman Management Education Center, Suite 9-190, 44 West 4th Street, New York, NY 10012-1126, or through email: email@example.com.