AN EMPIRICAL-INVESTIGATION OF ASSET PRICING-MODELS USING JAPANESE STOCK-MARKET DATA

This article examines the empirical performance of the following asset pricing models: (i) a time-separable model; (ii) Abel's model with a consumption externality; (iii) the time non-separable model; (iv) the consumption-based recursive utility model; and (v) the ad-hoc factor p ricing model. The testing framework includes the Hansen-Jagannathan vo latility bounds test, the Hansen-Jagannathan specification error test and Euler equation-based generalized method of moments estimation. The test evidence indicates that habit forming preferences are empiricall y supportable and provide a good characterization of the Japanese secu rity market data. (JEL G12). (C) 1997 Elsevier Science Ltd.