JSM 2004 - Toronto

Abstract #300383

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Activity Number: 24
Type: Contributed
Date/Time: Sunday, August 8, 2004 : 2:00 PM to 3:50 PM
Sponsor: Business and Economics Statistics Section
Abstract - #300383
Title: On a Simple Econometric Approach for Utility-based Asset Pricing Model
Author(s): Jack C. Lee*+ and Cheng-Few Lee and H. F. Ni
Companies: National Chiao Tung University and National Chiao Tung University and National Chiao Tung University
Address: Institute of Statistics and Graduate Institute of Finance, Hsinchu, International, , Taiwan
Keywords: Bayesian ; Box-Cox transformation ; real data ; relative risk aversion
Abstract:

The Journal of Finance has published an important paper, "A Simple Econometric Approach for Utility-Based Asset Pricing Model," by Brown and Gibbon (1985). The main purpose of this paper is to extend the research of Brown and Gibbon (1985) and Karson et al.(1995) in estimating the relative risk aversion (RRA) parameter beta in utility-based asset pricing model. First, we review the distributions of RRA parameter estimate beta^. Then, a new method to the distribution of beta^ is derived, and a Bayesian approach for the inference of beta is proposed. Finally, empirical results are presented by using market rate of return and riskless rate data during the period December 1925 through December 2001.

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