IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v19y2012i5p483-486.html
   My bibliography  Save this article

An interrelation of time preference and risk attitude: an application to the equity premium puzzle

Author

Listed:
  • Jangkoo Kang
  • Hwa-Sung Kim

Abstract

In the fields of behavioural economics and finance, several researchers show that the time preference of an investor is related to his/her attitude towards risky assets. This article investigates whether the equity premium puzzle laid out in Mehra and Prescott (1985) can be accounted for when this relation is imposed on the representative agent model of asset pricing. Three primary features of our analysis allow us to investigate the relationship. First, we derive an equation satisfied by the rate of time preference. Second, our model can yield an equity premium that is consistent with the observed data even in the standard power utility setting. Third, to fit the observed equity premium, we show that it is required to assume a negative rate of time preference, which is consistent with Kocherlakota (1996) and Brennan and Xia (2001).

Suggested Citation

  • Jangkoo Kang & Hwa-Sung Kim, 2012. "An interrelation of time preference and risk attitude: an application to the equity premium puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 19(5), pages 483-486, March.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:5:p:483-486
    DOI: 10.1080/13504851.2011.587755
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13504851.2011.587755
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/13504851.2011.587755?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:19:y:2012:i:5:p:483-486. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.