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Nonparametric Euler Equation Identification andEstimation

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Publication Date: 2015-10-01

Series: CWPE;1560

Publisher: Faculty of Economics

Type: Working Paper

Metadata: Show full item record

Citation: Escanciano, J. C., Hoderlein, S., Lewbel, A., Linton, O., & Srisuma, S. (2015). Nonparametric Euler Equation Identification andEstimation.

Abstract: We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations.Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions (without imposing functional restrictions or just assuming completeness). We also propose a novel nonparametric estimator based on our identification analysis, which combines standard kernel estimation with the computation of a matrix eigenvector problem. Our esti-mator avoids the ill-posed inverse issues associated with existing nonparametric instrumental variables based Euler equation estimators. We derive limiting distributions for our estimator and for relevant associated functionals. We provide a Monte Carlo analysis and an empirical application to US household-level consumption data. 

nonparametric identification 

Keywords: Euler equations, marginal utility, pricing kernel, Fredholm equations, integral equations, asset pricing.


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Autor: Escanciano, J. C.Hoderlein, S.Lewbel, A.Linton, O.Srisuma, S.



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