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Estimating Preference Parameters From Stock Returns Using Simulated Method Of Moments

Author

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  • ANINDYA BISWAS

    (Spring Hill College, Mobile, AL, USA)

  • BISWAJIT MANDAL

    (Visva-Bharati University, Santiniketan, India)

Abstract

This study proposes a new way of solving standard dynamic problem based on Simulated Method of Moments (SMM) approach. It uses a newly introduced model of stock returns involving latent state variables and the regime-switching fundamentals and estimates three key preference parameters namely the Coefficient of Relative Risk Aversion, the Elasticity of Intertemporal Substitution and the subjective discount factor by suitably applying SMM and without directly using noisy consumption data. The estimates we found here seem to be relatively better than prevalent studies and very close to the true values of the parameters.

Suggested Citation

  • Anindya Biswas & Biswajit Mandal, 2016. "Estimating Preference Parameters From Stock Returns Using Simulated Method Of Moments," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-13, March.
    • Handle: RePEc:wsi:afexxx:v:11:y:2016:i:01:n:s2010495216500056
    DOI: 10.1142/S2010495216500056
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    References listed on IDEAS

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    Cited by:

    1. Elminejad, Ali & Havranek, Tomas & Irsova, Zuzana, 2022. "Relative Risk Aversion: A Meta-Analysis," MetaArXiv b8uhe, Center for Open Science.

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