127hand1

# 127hand1 - Parameter Variable Assumed Mean consumption...

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Statistics that model parameters were chosen to replicate. Parameter Variable Value Assumed: Utility curvature Correlation between Δ d and Δ c Implied: Steady-state surplus consumption ratio Maximum surplus consumption ratio g σ r f φ γ σ ω ρ δ s S max P ARAMETER C HOICES TABLE 1: 1.89 1.50 0.94 0.87 2.00 11.2 0.2 0.89 0.057 0.094 Mean consumption growth (%) Standard deviation of consumption growth (%) Log risk-free rate (%) Persistence coefficient Standard deviation of dividend growth (%) Subjective discount factor Annualized values, e.g., 12g, 12 σ , 12r f , φ 12, and δ 12 , since the model is simulated at a monthly frequency. Statistic Postwar Sample Long Sample Means and Standard Deviations of Simulated and Historical Data TABLE 2: 1.72 3.32 2.92 0.22 3.90 Dividend Claim Consumption Claim 18.0 21.1 0.27 1.89 1.22 0.094 0.43 0.33 0.50 6.69 15.7 24.7 0.26 1.89 1.22 0.094 0.43 0.50 6.64 15.2 18.3 0.27 6.52 20.0 18.7 0.29 E( Δ c) σ ( Δ c) E(r - r f ) / σ (r - r f ) E(r - r f ) σ (r - r f ) E(R - R f ) / σ (R - R f ) exp [E(p - d)] σ (p - d) Note - The model is simulated at a monthly frequency; statistics are calculated from artificial time-averaged data at an annual frequency. All returns are annual percentages.

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