Asset Pricing under Quantile Utility Maximization
Abstract"Focus on the downside, and the upside will take care of itself" is a famous quote among professional investors. By considering an agent who follows this advice, we reproduce the first and second moments of stock returns, risk-free rate and consumption growth. The agent´s behavior towards risk is analogous to a relative risk aversion of about 3 under expected utility, the elasticity of intertemporal substitution is about 0.5 and the time discount factor is below 1. In particular, the proposed model separates time and risk preferences in an innovative way.
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Bibliographic InfoPaper provided by University of São Paulo (FEA-USP) in its series Working Papers, Department of Economics with number 2012_16.
Date of creation: 10 Sep 2012
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Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- Gary V. Engelhardt & Anil Kumar, 2008.
"The elasticity of intertemporal substitution: new evidence from 401(k) participation,"
0812, Federal Reserve Bank of Dallas.
- Engelhardt, Gary V. & Kumar, Anil, 2009. "The elasticity of intertemporal substitution: New evidence from 401(k) participation," Economics Letters, Elsevier, vol. 103(1), pages 15-17, April.
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