Saving-Based Asset Pricing and Leisure

This paper integrates two strands of the asset-pricing literature. Dreyer et al. (2013) developed and estimated a model of "saving-based" preferences that provides a plausible resolution of the equity premium paradox; Uhlig (2007) has emphasized the importance of incorporating labor supply...

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Bibliographic Details
Published in:Annals of economics and finance 2020-11, Vol.21 (2), p.507-526
Main Authors: Dreyer, Johannes K, Schneider, Johannes, Smith, William T
Format: Article
Language:English
Subjects:
Asset pricing
Consumption
Equity
Generalized method of moments
Growth rate
Labor supply
Leisure
Preferences
Utility functions
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Summary:This paper integrates two strands of the asset-pricing literature. Dreyer et al. (2013) developed and estimated a model of "saving-based" preferences that provides a plausible resolution of the equity premium paradox; Uhlig (2007) has emphasized the importance of incorporating labor supply into models of asset pricing. Here we analyze the implications for asset pricing of incorporating non-separable leisure into a model with saving-based preferences. We derive the Euler equations for this class of preferences and show that our parameter estimates are statistically significant, indicating that investors possess both preferences for savings and for leisure in the American economy.
ISSN:1529-7373