### Abstract

Original language | English |
---|---|

Place of Publication | København |

Publisher | Copenhagen Business School [wp] |

Number of pages | 36 |

ISBN (Print) | 8790705831 |

Publication status | Published - 2004 |

### Cite this

*Latent Utility Shocks in a Structural Empirical Asset Pricing Model*. København: Copenhagen Business School [wp].

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**Latent Utility Shocks in a Structural Empirical Asset Pricing Model.** / Christensen, Bent Jesper; Raahauge, Peter.

Research output: Working paper › Research

TY - UNPB

T1 - Latent Utility Shocks in a Structural Empirical Asset Pricing Model

AU - Christensen, Bent Jesper

AU - Raahauge, Peter

PY - 2004

Y1 - 2004

N2 - We consider a random utility extension of the fundamental Lucas (1978) equilibriumasset pricing model. The resulting structural model leads naturally to a likelihoodfunction. We estimate the model using U.S. asset market data from 1871 to2000, using both dividends and earnings as state variables. We find that current dividendsdo not forecast future utility shocks, whereas current utility shocks do forecastfuture dividends. The estimated structural model produces a sequence of predictedutility shocks which provide better forecasts of future long-horizon stock market returnsthan the classical dividend-price ratio.KEYWORDS: Randomutility, asset pricing, maximumlikelihood, structuralmodel,return predictability

AB - We consider a random utility extension of the fundamental Lucas (1978) equilibriumasset pricing model. The resulting structural model leads naturally to a likelihoodfunction. We estimate the model using U.S. asset market data from 1871 to2000, using both dividends and earnings as state variables. We find that current dividendsdo not forecast future utility shocks, whereas current utility shocks do forecastfuture dividends. The estimated structural model produces a sequence of predictedutility shocks which provide better forecasts of future long-horizon stock market returnsthan the classical dividend-price ratio.KEYWORDS: Randomutility, asset pricing, maximumlikelihood, structuralmodel,return predictability

KW - Aktieinvestering

KW - USA

KW - Aktiemarkeder

KW - Dividende

KW - Asset pricing

M3 - Working paper

SN - 8790705831

BT - Latent Utility Shocks in a Structural Empirical Asset Pricing Model

PB - Copenhagen Business School [wp]

CY - København

ER -