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Time Variability In Market Risk Aversion

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  • Dave Berger
  • H. J. Turtle

Abstract

We adopt realized covariances to estimate the coefficient of risk aversion across portfolios and through time. Our approach yields second moments that are free from measurement error and not influenced by a specified model for expected returns. Supporting the permanent income hypothesis, we find risk aversion responds to consumption‐smoothing behavior. As income increases, or as the consumption‐to‐income ratio falls, relative risk aversion decreases. We also document variation in risk aversion across portfolios: risk aversion is highest for small and value portfolios.

Suggested Citation

  • Dave Berger & H. J. Turtle, 2009. "Time Variability In Market Risk Aversion," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(3), pages 285-307, September.
    • Handle: RePEc:bla:jfnres:v:32:y:2009:i:3:p:285-307
    DOI: 10.1111/j.1475-6803.2009.01251.x
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    3. Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon, 2015. "Realized spill-over effects between stock and foreign exchange market: Evidence from regional analysis," Global Finance Journal, Elsevier, vol. 28(C), pages 24-37.

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