### Abstract

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

Place of Publication | Frederiksberg |

Publisher | Institut for Finansiering, Copenhagen Business School |

Number of pages | 32 |

ISBN (Print) | 8790705831 |

Publication status | Published - 2004 |

Series | Working Papers / Department of Finance. Copenhagen Business School |
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Number | 2004-7 |

ISSN | 0903-0352 |

### Keywords

- Random utility
- Asset pricing
- Maximum likelihood
- Structural model
- Return predictability

### Cite this

*Latent Utility Shocks in a Structural Empirical Asset Pricing Model*. Frederiksberg: Institut for Finansiering, Copenhagen Business School. Working Papers / Department of Finance. Copenhagen Business School, No. 2004-7

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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) equilibrium asset pricing model. The resulting structural model leads naturally to a likelihood function. We estimate the model using U.S. asset market data from 1871 to 2000, using both dividends and earnings as state variables. We find that current dividends do not forecast future utility shocks, whereas current utility shocks do forecast future dividends. The estimated structural model produces a sequence of predicted utility shocks which provide better forecasts of future long-horizon stock market returns than the classical dividend-price ratio.

AB - We consider a random utility extension of the fundamental Lucas (1978) equilibrium asset pricing model. The resulting structural model leads naturally to a likelihood function. We estimate the model using U.S. asset market data from 1871 to 2000, using both dividends and earnings as state variables. We find that current dividends do not forecast future utility shocks, whereas current utility shocks do forecast future dividends. The estimated structural model produces a sequence of predicted utility shocks which provide better forecasts of future long-horizon stock market returns than the classical dividend-price ratio.

KW - Aktieinvestering

KW - USA

KW - Aktiemarkeder

KW - Dividende

KW - Asset pricing

KW - Random utility

KW - Asset pricing

KW - Maximum likelihood

KW - Structural model

KW - Return predictability

M3 - Working paper

SN - 8790705831

T3 - Working Papers / Department of Finance. Copenhagen Business School

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

PB - Institut for Finansiering, Copenhagen Business School

CY - Frederiksberg

ER -