An Intemporal Model of Asset Prices in a Markov Economy with a Limiting Stationary Distribution

Kazemi, Hossein B.

doi:10.1093/rfs/5.1.85

Cited by 31 publications

(24 citation statements)

References 38 publications

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“…Kazemi (1992) shows that in a Markov economy with a limiting stationary distribution, the return on the discount bond with the longest maturity equals the stochastic discount factor. Growth optimal returns were analyzed in Cochrane (1992) and Bansal and Lehmann (1997).…”

Section: A Pricing Kernels With No Permanent Innovationsmentioning

confidence: 99%

Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth

2005

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We derive a lower bound for the size of the permanent component of investors' marginal utility of wealth, or more generally, asset pricing kernels. The bound is based on return properties of long-term zero-coupon bonds, risk-free bonds, and other risky securities. We find the permanent component of the pricing kernel to be very large; its volatility is about at least as large as the volatility of the stochastic discount factor. We also show that, for many cases where the pricing kernel is a function of consumption, innovations to consumption need to have permanent effects.

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Section: A Pricing Kernels With No Permanent Innovationsmentioning

confidence: 99%

Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth

2005

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Section: Introductionmentioning

confidence: 99%

“…Kazemi (1992) presents an intertemporal model of asset prices in a Markov economy with a limiting stationary distribution. By assuming that state variables follow Markov processes with limiting stationary density functions, Kazemi (1992) shows that the rate of return on a long term default free discount bond will be perfectly negatively correlated with the growth rate of the representative investor's marginal utility of consumption. Whitelaw (2000) shows that a two-regime exchange economy, estimated using consumption growth data, is able to duplicate two interesting features of the empirical relation between expected returns and volatility at the market level.…”

Section: Introductionmentioning

confidence: 99%

General equilibrium asset pricing under regime switching

Elliott¹,

Miao²,

Yu³

2008

COSA

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Abstract. We have investigated the asset pricing problem in a general equilibrium in an economy with two states. Based on the assumption of a CRRA utility function, we have derived a partial differential equation satisfied by the representative agent's cost function. In the case when the representative agent doesn't have intermediate consumption, we have found an explicit solution of the cost function. A closed-form expression for the riskless interest rate has been derived. We have also provided a partial differential equation satisfied by any contingent claim. Based on the stochastic discount factor computed, we have suggested an explanation for the equity premium puzzle.

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“…

AbstractThis article uses bond market data to empirically test the asset pricing model of Kazemi (1992). According to this model the rate of return on a long-term, pure-discount, default-free bond will be perfectly correlated with changes in the marginal utility of the representative investor.

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confidence: 99%

“…We estimate and test the restrictions imposed by the model on returns of default-free bonds, while allowing the conditional distribution of bond returns to be time varying. The model is rejected during the full sample period and the subperiod (1973)(1974)(1975)(1976)(1977)(1978)(1979)(1980) when the Federal Reserve's focus is on interest rates, while the model is not rejected during the subperiod (1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995) Kazemi (1992). …”

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confidence: 99%

Time-varying risk and return in the bond market: a test of a new equilibrium pricing model

Campbell

1999

Review of Financial Studies

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This article uses bond market data to empirically test the asset pricing model of Kazemi (1992). According to this model the rate of return on a long-term, pure-discount, default-free bond will be perfectly correlated with changes in the marginal utility of the representative investor. The covariability between financial asset returns and returns on such a bond can therefore serve as a measure of the riskiness of assets. The aim of this study is to determine whether the model can explain cross-sectional differences in the monthly returns of bonds with different maturity dates. We estimate and test the restrictions imposed by the model on returns of default-free bonds, while allowing the conditional distribution of bond returns to be time varying. The model is rejected during the full sample period and the subperiod (1973)(1974)(1975)(1976)(1977)(1978)(1979)(1980) when the Federal Reserve's focus is on interest rates, while the model is not rejected during the subperiod (1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995) Kazemi (1992).

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An Intemporal Model of Asset Prices in a Markov Economy with a Limiting Stationary Distribution

Cited by 31 publications

References 38 publications

Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth

Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth

General equilibrium asset pricing under regime switching

Time-varying risk and return in the bond market: a test of a new equilibrium pricing model

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