← Search

The Systematic Specification of a Full Prior Covariance Matrix for Asset Demand Equations

Gary Smith

University of Houston

Linear expenditure systems are widely used to describe consumption and portfolio decisions. However, the complexity of these models makes estimation a formidable task. In earlier work, an exchangeability assumption was used to incorporate subjective a priori information into the estimation of asset demand equations. Here, an alternative hierarchical approach is described and illustrated. This procedure provides a framework in which the identification of a limited number of distinct reasons for prior uncertainty can be converted into a full prior covariance matrix. Such a matrix can then be combined with prior means and the sample data to yield Bayesian parameter estimates.

DOI

10.2307/1882393

Volume

96 (2)

Pages

317

Export

BibTeX

Sources

openalex crossref