On the Consequences of State Dependent Preferences for the Pricing of Financial Assets

Détails

ID Serval
serval:BIB_8DF58E903FD0
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
On the Consequences of State Dependent Preferences for the Pricing of Financial Assets
Périodique
Finance Research Letters
Auteur(s)
Danthine J.-P., Donaldson J.B., Giannikos C., Guirguis H.
Statut éditorial
Publié
Date de publication
2004
Peer-reviewed
Oui
Volume
1
Numéro
3
Pages
143-153
Langue
anglais
Résumé
This paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agent?s coefficient of relative risk aversion to vary with the underlying economy?s growth rate. Existence of equilibrium is proved and its asymptotic properties analyzed. This generalization leads to level dependent marginal rates of substitution, a property that sharply distinguishes this model from the standard construct. For very low coefficients of relative risk aversion, the equilibrium risk free and risky security returns are demonstrated to have volatilities and an associated equity premium that substantially exceed what is found in the data. This provides a contrasting perspective on the classic ?equity premium puzzle.?
Mots-clé
state dependent utility, equity premium, equity premium puzzle
Création de la notice
19/11/2007 11:39
Dernière modification de la notice
03/03/2018 19:17
Données d'usage