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Asset pricing with time preference shocks: Existence and uniqueness

Author

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  • Stachurski, John
  • Wilms, Ole
  • Zhang, Junnan

Abstract

This paper studies existence and uniqueness of recursive utility in asset pricing models with time preference shocks. We provide conditions that clarify existence and uniqueness for a wide range of models, including exact necessary and sufficient conditions for standard formulations. The conditions isolate the roles of preference parameters, as well as the different risks that drive the consumption and preference shock processes. By deriving and decomposing a stability coefficient for recursive utility models, we show how different parameters in the model interact to determine existence and uniqueness of solutions.

Suggested Citation

  • Stachurski, John & Wilms, Ole & Zhang, Junnan, 2024. "Asset pricing with time preference shocks: Existence and uniqueness," Journal of Economic Theory, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:jetheo:v:216:y:2024:i:c:s0022053123001771
    DOI: 10.1016/j.jet.2023.105781
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    More about this item

    Keywords

    Asset pricing; Recursive preferences; Time preference shocks; Long-run risk;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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