Review of Financial Studies Vol. 32 No. 9 2018

Does Smooth Ambiguity Matter for Asset Pricing?

A. Ronald Gallant¹; Mohammad R Jahan-Parvar²; Hening Liu³

¹ Pennsylvania State University · ² Federal Reserve Board · ³ University of Manchester

Abstract

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate consumption data, our estimation provides statistical support for asset pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning, and time-varying volatility are preferred to the long-run risk model. We also analyze asset pricing implications of the estimated models. Received April 12, 2016; editorial decision September 11, 2018 by Editor Stijn Van Nieuwerburgh.

DOI

10.1093/rfs/hhy118

Volume

32

Issue

9

Pages

3617-3666

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓