Exploring Consumption-Based Asset Pricing Model with Stochastic-Trend Forcing Processes

Applied Economics, 36:14, 1591-1597, 2004

Posted: 31 Mar 2013

See all articles by Tony S. Wirjanto

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 2004

Abstract

Using Canadian data, the consumption-based asset pricing model is studied, defined in terms of nondurable and durable goods consumption. A two-stage estimation procedure is used, which takes account of the presence of common stochastic trends in the forcing processes. This method yields more reasonable estimates of the preference parameters than the previous studies did, and the asset-pricing equation is not rejected by the data. Moreover, the preference specification adopted in this paper allows a number of useful economic information to be obtained. The additive separability assumption and the Cobb–Douglas functional form of the utility function are ruled complements in the sense of Edgeworth and Pareto.

Keywords: Asset Pricing, Consumption, Generalized Method of Moments, Cointegration, Preference Parameters

JEL Classification: C13, C22, C32, C52, D91, G12, E21

Suggested Citation

Wirjanto, Tony S., Exploring Consumption-Based Asset Pricing Model with Stochastic-Trend Forcing Processes (2004). Applied Economics, 36:14, 1591-1597, 2004, Available at SSRN: https://ssrn.com/abstract=2241851

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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