World Equity Premium based Risk Aversion Estimates
AbstractThe equity premium puzzle holds that the coefficient of relative risk aversion estimated from the consumption based CAPM under power utility is excessively high. Moreover, estimates in the literature vary considerably across countries. We gauge the uncertainty pertaining to the country risk aversion estimates by means of jackknife resampling and pooling. The confidence band for the world risk aversion estimate from the pooled country data is much tighter and the pooled point estimate presents less of a puzzle than the individual country estimates.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-007/2.
Date of creation: 05 Jan 2010
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Equity premium puzzle; Jackknife; Pooling;
Other versions of this item:
- Lorenzo C. G. Pozzi & Casper De Vries & Jorn Zenhorst, 2010. "World Equity Premium Based Risk Aversion Estimates," CESifo Working Paper Series 3152, CESifo Group Munich.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-MAC-2010-05-15 (Macroeconomics)
- NEP-UPT-2010-05-15 (Utility Models & Prospect Theory)
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