The equity premium puzzle and decreasing relative risk aversion
Agents are assumed to have a power risk aversion utility function in an otherwise standard asset-pricing model. When these preferences display decreasing relative risk aversion they are capable of eliminating one version of the equity premium and risk free rate puzzles.
Volume (Year): 2 (2006)
Issue (Month): 3 (May)
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Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938
- Meyer, Donald J. & Meyer, Jack, 2005. "Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1497-1515, November.
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