Title:  Consumption, Liquidity and Strategic Asset Allocation 
Author(s):  Kahra, Hannu 
Date:  2003 
Language:  en 
Pages:  140 s. 
Major/Subject:  Taloustieteiden kvantitatiiviset menetelmät (Quantitative Methods) 
ISBN:  9517917910 
Series:  Acta Universitatis oeconomicae Helsingiensis. A, 221 
ISSN:  1237556X 
Bibid:  295064  Availability info (AaltoFinna) 
Supervising professor(s):  Kanto, Antti, professor 
Controlled terms:  Financial markets, Hinnoittelu, Portfolio, Pricing, Rahoitusmarkkinat 


Abstract:This study is based on a theoretical construction of the stochastic discount factor (SDF) framework of asset pricing theory and associated empirical verification procedures. The standard consumptionbased asset pricing model (CCAPM) is extended by introducing nonseparability in the utility function by adding liquidity to the utility function as an additional argument. When the Euler equations of the underlying power utility function of consumption and liquidity are estimated by GMM, it is found that liquidity is a direct and an important source of utility. When the recursive EpsteinZin preferences are assumed, it is found that: (1) the representative investor has an elasticity of intertemporal substitution less than one, (2) the income effect dominates the substitution effect, (3) the coefficient of relative risk aversion is above one, and (4) consumers prefer the early resolution of uncertainty.



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