1991/04/01 by Larry G. Epstein, Stanley E. Zin · 1,777 citations
Economics, Econometrics and Finance · #Asset (computer security) #Capital asset pricing model #Computer science #Consumption (sociology) #Econometrics #Economic theories and models #Economics #Elasticity of intertemporal substitution #Expected utility hypothesis #Financial Markets and Investment Strategies #Financial economics #Microeconomics #Monetary Policy and Economic Impact #Risk aversion (psychology) #Substitution (logic)
paper · doi:10.1086/261750
published in Journal of Political Economy 99(2), 263-286 (University of Chicago Press)
openalex publication_date 1991/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/30
This paper investigates the testable restrictions on the time-series behavior of consumption and asset returns implied by a representative agent model in which intertemporal preferences are represented by utility functions that generalize conventional, time-additive, expected utility. The model based on these preferences allows a clearer separation of observable behavior attributable to risk aversion and to intertemporal substitution. Further, it nests the predictions of both the consumption CAPM and the static CAPM, and it allows direct tests of the expected utility hypothesis. We find that the performance of the non-expected utility model and tests of the expected utility hypothesis are sensitive to the choice of both consumption measure and instrumental variables.