Agents' Preferences, the Equity Premium, and the Consumption-Saving Trade-Off: An Application to French Data

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Agents' Preferences, the Equity Premium, and the Consumption-Saving Trade-Off: An Application to French Data

Author Info

Aude Pommeret
Anne Epaulard

Additional information is available for the following registered author(s):

Anne Epaulard

Abstract

This paper aims to measure the risk premium on French equities during 1960-92 and to evaluate how well theoretical models based on various representations of agents' preferences can explain it. Aside from the standard, time-additive utility function with constant relative risk aversion, three other utility functions are reviewed: a recursive utility function, a habit formation utility function, and a utility function that accounts for the interdependence of preferences. Both calibration and econometric estimations show that none of the studied marginal changes in the representation of agents' preferences are sufficient to solve both the equity premium puzzle and the risk-free rate puzzle.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/117.

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Length: 36 pages
Date of creation: 10 Sep 2001
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Handle: RePEc:imf:imfwpa:01/117

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References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Other versions:
- Mankiw, N.G. & Zeldes, S.P., 1990. "The Consumption Of Stockholders And Non-Stockholders," Weiss Center Working Papers 23-90, Wharton School - Weiss Center for International Financial Research.
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Full references

Cited by:
(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.)

Guy Meredith, 2001. "Why Has the Euro Been So Weak?," IMF Working Papers 01/155, International Monetary Fund. [Downloadable!]

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