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Measuring Risk Aversion Across Countries from the Consumption-CAPM: A Spectral Approach

In: Wavelet Applications in Economics and Finance

Author

Listed:
  • Ekaterini Panopoulou

    (University of Kent)

  • Sarantis Kalyvitis

    (Athens University of Economics and Business)

Abstract

Using the Consumption-CAPM, Campbell (2003, Consumption-based asset pricing, Constantinides G, Harris M, Stulz R (eds), Handbook of the economics of finance, Amsterdam, North-Holland) reports cross-country evidence that imply implausibly large coefficients of relative risk aversion, thus confirming the “equity premium puzzle” in an international context. In this paper we adopt a spectral approach to re-estimate the values of risk aversion over the frequency domain. Our findings indicate that at lower frequencies risk aversion falls substantially across countries, thus yielding in many cases reasonable values of the implied coefficient of risk aversion.

Suggested Citation

  • Ekaterini Panopoulou & Sarantis Kalyvitis, 2014. "Measuring Risk Aversion Across Countries from the Consumption-CAPM: A Spectral Approach," Dynamic Modeling and Econometrics in Economics and Finance, in: Marco Gallegati & Willi Semmler (ed.), Wavelet Applications in Economics and Finance, edition 127, pages 249-261, Springer.
    • Handle: RePEc:spr:dymchp:978-3-319-07061-2_11
    DOI: 10.1007/978-3-319-07061-2_11
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