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
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