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Book/Printed Material Estimating the expected marginal rate of substitution exploiting idiosyncratic risk

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Title

  • Estimating the expected marginal rate of substitution exploiting idiosyncratic risk

Summary

  • "This paper develops a simple but general methodology to estimate the expected intertemporal marginal rate of substitution or "EMRS", using only data on asset prices and returns. Our empirical strategy is general, and allows the EMRS to vary arbitrarily over time. A novel feature of our technique is that it relies upon exploiting idiosyncratic risk, since theory dictates that idiosyncratic shocks earn the EMRS. We apply our methodology to two different data sets: monthly data from 1994 through 2003, and daily data for 2003. Both data sets include assets from three different markets: the New York Stock Exchange, the NASDAQ, and the Toronto Stock Exchange. For both monthly and daily frequencies, we find plausible estimates of EMRS with considerable precision and time-series volatility. We then use these estimates to test for asset integration, both within and between stock markets. We find that all three markets seem to be internally integrated in the sense that different assets traded on a given market share the same EMRS. The technique is also powerful enough to reject integration between the three stock markets, and between stock and money markets"--National Bureau of Economic Research web site.

Names

  • Flood, Robert P.
  • Rose, Andrew, 1959-
  • National Bureau of Economic Research

Created / Published

  • Cambridge, MA : National Bureau of Economic Research, c2004.

Headings

  • -  Risk--Mathematical models
  • -  Stocks--Prices--Mathematical models
  • -  Stocks--Rate of return--Mathematical models

Notes

  • -  Title from PDF file as viewed on 1/10/2005.
  • -  Includes bibliographical references.
  • -  Also available in print.
  • -  Mode of access: World Wide Web.
  • -  System requirements: Adobe Acrobat Reader.

Call Number/Physical Location

  • HB1

Digital Id

Library of Congress Control Number

  • 2005615381

Access Advisory

  • Unrestricted online access

Online Format

  • image
  • pdf

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Cite This Item

Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Flood, Robert P, Andrew Rose, and National Bureau Of Economic Research. Estimating the Expected Marginal Rate of Substitution Exploiting Idiosyncratic Risk. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. https://aj.sunback.homes/item/2005615381/.

APA citation style:

Flood, R. P., Rose, A. & National Bureau Of Economic Research. (2004) Estimating the Expected Marginal Rate of Substitution Exploiting Idiosyncratic Risk. Cambridge, MA: National Bureau of Economic Research. [Pdf] Retrieved from the Library of Congress, https://aj.sunback.homes/item/2005615381/.

MLA citation style:

Flood, Robert P, Andrew Rose, and National Bureau Of Economic Research. Estimating the Expected Marginal Rate of Substitution Exploiting Idiosyncratic Risk. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. Retrieved from the Library of Congress, <aj.sunback.homes/item/2005615381/>.