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Ratchet vs Blasé Investors and Asset Markets

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  • Pascal St-Amour

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Abstract

His paper proposes a new wealth-dependent utility function for the inter-temporal consumption and portfolio problem, in which the subsistance (bliss) consumption level is a function of wealth. Ratchet effects obtain when higher wealth increases the subsistance consumption level; blasé behavior occurs when higher wealth reduces it. We have three contributions: (i) we identify closed-form solutions for optimal consumption and portfolio rules; (ii) we use the optimal rules to estimate the model using aggregate portfolio data, and (iii) we derive and discuss the pricing implications of our results. Our estimates are consistent with blasé behavior and counter-cyclical risk aversion. Cet article propose une nouvelle fonction d'utilité contingente à la richesse pour le problème de la consommation et de portefeuille inter-temporels, où le niveau de subsistance (félicité) de la consommation dépend de la richesse. Des effets de rochet sont obtenus lorsque la richesse accroît le niveau de félicité, des effets blasés lorsqu'elle le réduit. Nous présentons trois contributions : (i) nous identifions des formes réduites pour la consommation et les portefeuilles optimaux; (ii) nous utilisons ces règles pour estimer le modèle à partir de la consommation et des positions financières agrégées et (iii) nous dérivons et discutons des implications de valorisation des actifs. Nos résultats indiquent la présence d'effet blasé et d'aversion contra-cyclique.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2004s-11.

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Date of creation: 01 Mar 2004
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Handle: RePEc:cir:cirwor:2004s-11

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Keywords: portfolio choice; wealth-dependent preferences; preference for status; asset pricing; equity premium; risk-free rate; predictability; choix de portefeuille; préférences contingentes à la richesse; préférence pour le statut social; valorisation des actifs; prime de risque; taux sans risque; prévisibilité;

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