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Power Risk Aversion Utility Functions

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Author Info

  • Danyang Xie

    ()
    (Department of Economics, Hong Kong University of Science and Technology
    International Monetary Fund)

Abstract

This paper introduces a new class of utility functions---the power risk aversion. It is shown that the CRRA and CARA utility functions are both in this class. The implications of the PRA utility functions are explored in the context of growth theory. In particular, it is found that economies facing a common real interest rate do not necessarily grow at the same rates if they start with different levels of capital stock. Thus diversity in growth performance across countries occurs even if these countries have access to perfect international capital markets. Potential applications of the PRA in asset pricing are considered.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 22.

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Length: 18 pages
Date of creation: Nov 1999
Date of revision: Oct 2000
Publication status: Published in Annals of Economics and Finance, Nov 2000, pages 265-282
Handle: RePEc:cuf:wpaper:22

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Web page: http://cema.cufe.edu.cn/
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Related research

Keywords: PRA utility functions; Growth; Asset pricing;

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Cited by:
  1. Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," Economics, Finance and Accounting Department Working Paper Series n1780907, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Mitra, Tapan & Roy, Santanu, 2010. "Sustained Positive Consumption in a Model of Stochastic Growth: The Role of Risk Aversion," Working Papers 10-03, Cornell University, Center for Analytic Economics.
  3. Bahaji, Hamza, 2012. "De l’évaluation des stock options en « juste valeur » : apport de l’approche comportementale," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10710 edited by Casta, Jean-François, November.
  4. Smith, William T. & Zhang, Qiang, 2007. "Asset pricing with multiplicative habit and power-expo preferences," Economics Letters, Elsevier, vol. 94(3), pages 319-325, March.
  5. William T. Smith & Qiang Zhang, 2006. "Asset Pricing With Multiplicative Habit and Power-Expo Preferences (Subsequently published in "Economics Letters", 2007, 94(3), 319-325. )," CARF F-Series CARF-F-070, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  6. Denis Conniffe, 2007. "Generalised Means of Simple Utility Functions with Risk Aversion," Economics, Finance and Accounting Department Working Paper Series n1790907.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  7. Denis Conniffe, 2007. "The Flexible Three Parameter Utility Function," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 57-63, May.

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