Abstract: | We use purely statistical methods to determine if the pricingkernel is the intertemporal marginal rate of substitution underrecursive utility. We introduce a nonparametric Bayesian methodthat treats the pricing kernel as a latent variable and extractsit and its transition density from payoffs on 24 Fama-Frenchportfolios, on bonds, and on payoffs that use conditioning informationavailable when portfolios are formed. Our priors are formedfrom an examination of a Bansal-Yaron economy. Using both monthlydata and annual data, we find that the data support recursiveutility. |