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Risk Aversion and Determinants of Stock Market Behavior

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Author Info
Pindyck, Robert S

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Abstract

A structural model of equity pricing is developed to address two related questions. First, to what extent do unanticipate d changes in such "fundamental" variables as profitability, real in terest rates, inflation, and the variance of returns explain observed stock returns? Second, how risk averse are investors in the aggregat e? The author finds that the pretax profit rate and the variance of r eturns are both significant explainers of the market, and interest ra tes somewhat less so. Estimates of the index of relative risk aversio n put that parameter in the range of 3 to 4. Copyright 1988 by MIT Press.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 70 (1988)
Issue (Month): 2 (May)
Pages: 183-90
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Handle: RePEc:tpr:restat:v:70:y:1988:i:2:p:183-90

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February. [Downloadable!] (restricted)
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  2. Martin Feldstein, 1980. "Inflation, Tax Rules, and the Stock Market," NBER Working Papers 0403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December. [Downloadable!] (restricted)
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  4. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
  5. Zvi Bodie & Alex Kane & Robert L. McDonald, 1984. "Why Are Real Interest Rates So High?," NBER Working Papers 1141, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Fischer, Stanley & Merton, Robert C., 1984. "Macroeconomics and finance: The role of the stock market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 57-108, January. [Downloadable!] (restricted)
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  7. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December. [Downloadable!] (restricted)
  8. Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-47, December. [Downloadable!] (restricted)
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  9. Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-27, May. [Downloadable!] (restricted)
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  11. Mervyn A. King & Jonathan I. Leape, 1984. "Wealth and Portfolio Composition: Theory and Evidence," NBER Working Papers 1468, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Benjamin M. Friedman, 1985. "Crowding Out or Crowding In? Evidence on Debt-Equity Substitutability," NBER Working Papers 1565, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," Journal of Business, University of Chicago Press, vol. 46(3), pages 434-53, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Hui Guo & Robert F. Whitelaw, 2003. "Uncovering the Risk-Return Relation in the Stock Market," NBER Working Papers 9927, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Geert Bekaert & Eric Engstrom & Yuhang Xing, 2006. "Risk, Uncertainty and Asset Prices," NBER Working Papers 12248, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Marjorie Flavin & Takashi Yamashita, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle," NBER Working Papers 6389, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Hui Guo, 2002. "Stock market returns, volatility, and future output," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 75-86. [Downloadable!]
  6. H. Naci Mocan & Stephen C. Billups & Jody Overland, 2000. "A Dynamic Model of Differential Human Capital and Criminal Activity," NBER Working Papers 7584, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Tim Bollerslev & Ray Y. Chou & Narayanan Jayaraman & Kenneth F. Kroner, 1991. "Les modéles ARCH en finance : un point sur la théorie et les résultats empiriques," Annales d'Economie et de Statistique, ADRES, issue 24, pages 01, Octobre-D. [Downloadable!]
  8. Marjorie Flavin & Takashi Yamashita, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio over the Life Cycle," University of California at San Diego, Economics Working Paper Series 98-02, Department of Economics, UC San Diego. [Downloadable!]
  9. Marjorie Flavin & Takashi Yamashita, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio over the Life Cycle," University of California at San Diego, Economics Working Paper Series 1998-02, Department of Economics, UC San Diego. [Downloadable!]
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