Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models

Hansen, Lars Peter; Singleton, Kenneth J.

doi:10.2307/1911486

Cited by 1,102 publications

(902 citation statements)

References 25 publications

Supporting

Mentioning

867

Contrasting

Unclassified

Order By: Relevance

“…To avoid this problem, we shall use an alternative approach, based on Hansen's (1982) generalized method of moments This provides a means of estimating parameters in a model by matching theoretical moments of the data, as functions of the parameters being estimated, to their sample counterparts. For a full description, see Hansen (1982) or Hansen and Singleton (1982).…”

Section: Characteristics Of Prepayment Behaviormentioning

confidence: 99%

Rational Prepayment and the Valuation of Mortgage-Backed Securities

Stanton¹

1995

Rev. Financ. Stud.

339

264

View full text Add to dashboard Cite

This article presents a new model of mortgage prepayments, based on rational decisions by mortgage holders. These mortgage bolders face beterogeneous transaction costs, which are explicitly modeled. The model is estimated using a version of Hansen's (1982) generalized method of moments, and is sbown to capture many of the empirical features of mortgage prepayment. Estimation results indicate that mortgage holders act as tbougb tbey face transaction costs tbat far exceed tbe explicit Costs usually incurred on refinancing. They also wait an average of more than a year before refinancing, even when it is optimal to do so. The model fits observed prepayment behavior as well as thee recent empirical model of Schwartz and Torous (1989). Implications for pricing mortgage-backed securities are' discussed A GNMA mortgage-backed security gives its owner a share in the cash flows from a pool of mortThis article is based on a chapter from my PhD. dissertation. I am grateful for helpful comments and suggestions to Oren Cheyette, Darrell Duffie, David Modest, Chester Span (the editor). Robert Whitelaw. Nicky King and an anonymous referee, as well as seminar participant.. at

show abstract

Section: Characteristics Of Prepayment Behaviormentioning

confidence: 99%

Rational Prepayment and the Valuation of Mortgage-Backed Securities

Stanton¹

1995

Rev. Financ. Stud.

339

264

View full text Add to dashboard Cite

show abstract

“…Our work differs because we use this framework to study cross-sectional returns rather than investment dynamics or financing constraints. Most important, our q-theory approach to understanding cross-sectional returns represents a fundamental departure from the traditional consumption-based approach (e.g., Hansen and Singleton 1982;Lettau and Ludvigson 2001) in that we do not make any preference assumptions.…”

Section: Introductionmentioning

confidence: 99%

Investment‐Based Expected Stock Returns

Liu

Whited

Zhang

2009

Journal of Political Economy

382

231

View full text Add to dashboard Cite

We derive and test q-theory implications for cross-sectional stock returns. Under constant returns to scale, stock returns equal levered investment returns, which are tied directly to firm characteristics. When we use generalized method of moments to match average levered investment returns to average observed stock returns, the model captures the average stock returns of portfolios sorted by earnings surprises, book-to-market equity, and capital investment. When we try to match expected returns and return variances simultaneously, the variances predicted in the model are largely comparable to those observed in the data. However, the resulting expected return errors are large.

show abstract

“…If the model's violation is due to liquidity constraints or to precautionary saving, excess sensitivity is more likely to arise in the younger and older age groups (Jappelli, 1990;Gourinchas and Parker, 2002). On the other hand, the sample 12 See Hansen and Singleton (1982), and for the properties of the IV estimators when the instruments are weakly correlated with the endogenous variable. 13 The group aged between 61 and 64 was excluded to prevent transitions into retirement from distorting the results.…”

Section: Resultsmentioning

confidence: 99%

“…The analysis of the sample did not show a high degree of correlation between age and unemployment transitions. 15 See Hansen and Singleton (1982), and for the properties of the IV estimators when the instruments are weakly correlated with the endogenous variable. 16 The group aged between 61 and 64 was excluded to prevent transitions into retirement from distorting the results.…”

Section: Resultsmentioning

confidence: 99%

Further evidence of excess sensitivity of consumption? Nonseparability among goods and heterogeneity across households

Alegre

Pou

2008

Applied Economics

View full text Add to dashboard Cite

The standard theoretical framework for analysing households' intertemporal decisions is the life-cycle/permanent income model. Among its implications, testing the model allows to analyse the response of consumption to fiscal policy. However, the empirical literature with microdata has yielded mixed results. This article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households. For that purpose, we test a rational expectations permanent income model with household data drawn from the Spanish Family Expenditure Survey. This survey contains detailed information on total expenditure and the income presents large, exogenous quarterly changes due to an institutional feature. The article shows that assuming separability among commodities biases the test against the model. When separability is not imposed, we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not. For those households permanently employed, the model cannot be rejected whatever their income status.

show abstract

Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models

Cited by 1,102 publications

References 25 publications

Rational Prepayment and the Valuation of Mortgage-Backed Securities

Rational Prepayment and the Valuation of Mortgage-Backed Securities

Investment‐Based Expected Stock Returns

Further evidence of excess sensitivity of consumption? Nonseparability among goods and heterogeneity across households

Contact Info

Product

Resources

About