Abstract
This paper provides two alternative estimation and testing procedures of a representative agent model of asset pricing which relies on a particular parametrization of non-expected-utility preferences. The first is based on maximum-likelihood estimates, supplemented with an explicit model of time varying first and second moments (where the time-variation of second moments is modelled with an ARCH process); the second is based on GMM. Tests are performed on monthly observations of industry stock returns and consumption. Our results extend a test of the dynamic capital asset pricing model performed by Hansen and Singleton (1982, 1983) and a recent test of the model studied here by Epstein and Zin (1991).
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