Two idiosyncratic trees with recursive utility

초록

I calibrate a consumption-based asset-pricing model under two Lucas trees, which represent aggregate stocks and bonds in the economy, respectively. The preference of the representative investor is characterized by recursive utility. I compare the quantitative results from my two-tree framework to the one-tree model with the recursive utility (Tallarini, 2000) and the two-tree model with the Constant Relative Risk Aversion (CRRA) utility. My parsimonious two-tree model outperforms the other benchmark models, and it matches stylized characteristics of asset returns in the market. © 2012 Copyright Taylor and Francis Group, LLC.

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