This paper presents estimates of key preference parameters of the Epstein and
Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model’s
ability to fit asset return data relative to other asset pricing models, and investi-
gates the implications of such estimates for the unobservable aggregate wealth
return. Our empirical results indicate that the estimated relative risk aversion pa-
rameter ranges from 17 to 60, with higher values for aggregate consumption than
for stockholder consumption, while the estimated elasticity of intertemporal sub-
stitution is above 1. In addition, the estimated model-implied aggregate wealth
return is found to be weakly correlated with the Center for Research in Security
Prices value-weighted stock market return, suggesting that the return to human
wealth is negatively correlated with the aggregate stock market return.
Keywords. Consumption based asset pricing, semiparametric estimation, lim-
ited stock market participation.
JEL classification. G12, E21.