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Asset pricing under quantile utility maximization

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  • Giovannetti, Bruno C.
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    Abstract

    “Focus on the downside, and the upside will take care of itself” is a famous quote among professional investors. By considering an agent who follows this advice, we reproduce the first and second moments of stock returns, risk-free rate and consumption growth. The agent's behavior toward risk is analogous to a relative risk aversion of about 3 under expected utility, the elasticity of intertemporal substitution is about 0.5 and the time discount factor is below 1. In particular, the proposed model separates time and risk preferences in an innovative way.

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    Bibliographic Info

    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 22 (2013)
    Issue (Month): 4 ()
    Pages: 169-179

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    Handle: RePEc:eee:revfin:v:22:y:2013:i:4:p:169-179

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    Web page: http://www.elsevier.com/locate/inca/620170

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    Keywords: Asset prices; Downside risk; Quantile utility;

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