Substitution, Risk Aversion, Taste Shocks and Equity Premia
AbstractThis paper investigates the testable restrictions on the time-series behavior of equity premia implied by a representative agent model whose state- and time-non separable preferences are subject to taste shocks. The model nests state- and time-separable preferences with and without taste shocks as special cases. Empirically, the linearized Euler equations are estimated through Kalman filtering, allowing for conditional heteroscedasticity via a common factor GARCH process. With or without conditional heteroscedasticity, (i) the hypothesis that preferences are separable cannot be rejected, (ii) taste shocks influences are statistically significant, and (iii) taste shocks yield reasonable estimates of the coefficient of relative risk aversion. This last result occurs because taste shocks reproduce the large observed equity premium by shifting weight away from consumption risk in favor to taste risk. This paper is available at ftp://crefe.dse.uqam.ca/pub/cahiers/cah39.ps The whole WP list is at http://www.er.uqam.ca/nobel/crefe/cahiers.html
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 9607001.
Length: 29 pages
Date of creation: 03 Jul 1996
Date of revision:
Note: 29 pages, Postscript file
Contact details of provider:
Web page: http://220.127.116.11
Other versions of this item:
- Michel Normandin & Pascal St-Amour, 1998. "Substitution, risk aversion, taste shocks and equity premia," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 265-281.
- Normandin, M. & St-Amour, P., 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Papers 9606, Laval - Recherche en Politique Economique.
- Normandin, Michel & St-Amour, Pascal, 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Cahiers de recherche 9606, Université Laval - Département d'économique.
- Michel Normandin & Pascal St-Amour, 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Cahiers de recherche CREFE / CREFE Working Papers 39, CREFE, Université du Québec à Montréal.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rui Albuquerque & Martin S. Eichenbaum & Sergio Rebelo, 2012.
"Valuation Risk and Asset Pricing,"
NBER Working Papers
18617, National Bureau of Economic Research, Inc.
- Traeger, Christian P, 2008.
"Why uncertainty matters - discounting under intertemporal risk aversion and ambiguity,"
CUDARE Working Paper Series
1092R2, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy, revised Jan 2012.
- Christian Traeger, 2012. "Why Uncertainty Matters - Discounting under Intertemporal Risk Aversion and Ambiguity," CESifo Working Paper Series 3727, CESifo Group Munich.
- Traeger, Christian P., 2012. "Why uncertainty matters - discounting under intertemporal risk aversion and ambiguity," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2w614303, Department of Agricultural & Resource Economics, UC Berkeley.
- Qiang Dai & Olesya V. Grishchenko, 2011. "An empirical investigation of consumption-based asset pricing models with stochastic habit formation," Finance and Economics Discussion Series 2011-47, Board of Governors of the Federal Reserve System (U.S.).
- Traeger, Christian P., 2011. "Interemporal Risk Aversion - or - Wouldn't it be Nice to Tell Whether Robinson Crusoe is Risk," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt67d581xt, Department of Agricultural & Resource Economics, UC Berkeley.
- Michel Normandin, 1999. "The Integration of Financial Markets and the Conduct of Monetary Policies: The Case of Canada and the United States," Cahiers de recherche CREFE / CREFE Working Papers 67, CREFE, Université du Québec à Montréal.
- Noah Kaufman, 2012. "The bias of integrated assessment models that ignore climate catastrophes," Climatic Change, Springer, vol. 110(3), pages 575-595, February.
- Minh Ha-Duong & Nicolas Treich, 2004.
"Risk aversion, intergenerational equity and climate change,"
25611, Institut National de la Recherche Agronomique, France.
- Minh Ha-Duong & Nicolas Treich, 2004. "Risk Aversion, Intergenerational Equity and Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(2), pages 195-207, June.
- Minh Ha-Duong & Nicolas Treich, 2004. "Risk aversion, intergenerational equity and climate change," Post-Print halshs-00000680, HAL.
- Pommeret, Aude & Smith, William T., 2005.
"Fertility, volatility, and growth,"
Elsevier, vol. 87(3), pages 347-353, June.
- Aude POMMERET & William T. SMITH, 2004. "Fertility, Volatility, and Growth," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 04.08, Université de Lausanne, Faculté des HEC, DEEP.
- Howitt, Richard E. & Reynaud, Arnaud & Msangi, Siwa & Knapp, Keith C., 2002. "Calibrated Stochastic Dynamic Models for Resource Management," 2002 Annual meeting, July 28-31, Long Beach, CA 19620, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Michel Normandin, 2004.
"Canadian and U.S. financial markets: testing the international integration hypothesis under time-varying conditional volatility,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 37(4), pages 1021-1041, November.
- Michel Normandin, 2003. "Canadian and U.S. Financial Markets: Testing the International Integration Hypothesis Under Time-Varying Conditional Volatility," Cahiers de recherche 03-08, HEC Montréal, Institut d'économie appliquée.
- Femminis, Gianluca, 2008. "Risk-aversion and the investment-uncertainty relationship: The role of capital depreciation," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 585-591, March.
- COUTURE Stephane & REYNAUD Arnaud, 2006. "Multi-stand Forest Management Under a Climatic Risk: Do time and Risk Preferences Matter?," LERNA Working Papers 06.17.210, LERNA, University of Toulouse.
- Minh Ha-Duong & Nicolas Treich, 1999. "Recursive Intergenerational Utility in Global Climate Risk Modeling," CIRANO Working Papers 99s-40, CIRANO.
- Frédéric Gonand, 2014.
"Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects,"
1408, Chaire Economie du Climat.
- Gonand, Frédéric, 2014. "Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects," Economics Papers from University Paris Dauphine 123456789/13361, Paris Dauphine University.
- Michel Normandin, 2006. "The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigation The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigationv," Cahiers de recherche 06-04, HEC Montréal, Institut d'économie appliquée.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.