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How Much Would You Pay to Resolve Long-Run Risk?

Author

Listed:
  • Larry Epstein
  • Emmanuel Farhi
  • Tomasz Strzalecki

Abstract

Though risk aversion and the elasticity of intertemporal substitution have been the subjects of careful scrutiny when calibrating preferences, the long-run risks literature as well as the broader literature using recursive utility to address asset pricing puzzles have ignored the full implications of their parameter specifications. Recursive utility implies that the temporal resolution of risk matters and a quantitative assessment of how much it matters should be part of the calibration process. This paper gives a sense of the magnitudes of implied timing premia. Its objective is to inject temporal resolution of risk into the discussion of the quantitative properties of long-run risks and related models.
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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Larry Epstein & Emmanuel Farhi & Tomasz Strzalecki, "undated". "How Much Would You Pay to Resolve Long-Run Risk?," Working Paper 8366, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:8366
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    File URL: http://scholar.harvard.edu/tomasz/node/8366
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:jfinan:v:72:y:2017:i:1:p:415-460 is not listed on IDEAS
    2. Tarek A. Hassan & Thomas M. Mertens, 2017. "The Social Cost of Near-Rational Investment," American Economic Review, American Economic Association, pages 1059-1103.
    3. repec:spr:jbuscr:v:13:y:2017:i:2:d:10.1007_s41549-017-0019-4 is not listed on IDEAS
    4. Tatyana Marchuk & Christian Schlag & Mariano Croce, 2017. "The Leading Premium," 2017 Meeting Papers 1251, Society for Economic Dynamics.
    5. George M. Constantinides & Anisha Ghosh, 2017. "Asset Pricing with Countercyclical Household Consumption Risk," Journal of Finance, American Finance Association, vol. 72(1), pages 415-460, February.
    6. Klaus Adam & Albert Marcet & Johannes Beutel, 2017. "Stock Price Booms and Expected Capital Gains," American Economic Review, American Economic Association, pages 2352-2408.
    7. Burkhard Heer & Alfred Maußner & Halvor Ruf, 2017. "Q-Targeting in New Keynesian Models," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), pages 189-224.
    8. Hasler, Michael & Marfè, Roberto, 2016. "Disaster recovery and the term structure of dividend strips," Journal of Financial Economics, Elsevier, pages 116-134.
    9. Frank N. Caliendo & Maria Casanova & Aspen Gorry & Sita Slavov, 2016. "The Welfare Cost of Retirement Uncertainty," NBER Working Papers 22609, National Bureau of Economic Research, Inc.
    10. Hengjie Ai & Ravi Bansal, 2016. "Risk Preferences and The Macro Announcement Premium," NBER Working Papers 22527, National Bureau of Economic Research, Inc.
    11. repec:oup:revfin:v:21:y:2017:i:3:p:945-985. is not listed on IDEAS
    12. van Binsbergen, Jules H. & Koijen, Ralph S.J., 2017. "The term structure of returns: Facts and theory," Journal of Financial Economics, Elsevier, vol. 124(1), pages 1-21.
    13. John Y. Campbell & Stefano Giglio & Christopher Polk & Robert Turley, 2012. "An Intertemporal CAPM with Stochastic Volatility," NBER Working Papers 18411, National Bureau of Economic Research, Inc.
    14. Koijen, Ralph & van Binsbergen, Jules H., 2015. "The Term Structure of Returns: Facts and Theory," CEPR Discussion Papers 10633, C.E.P.R. Discussion Papers.
    15. Tyler Abbot, 2017. "Heterogeneous Preferences, Constraints, and the Cyclicality of Leverage," Papers 1706.05877, arXiv.org, revised Nov 2017.
    16. Pierlauro Lopez, 2016. "Welfare Implications of the Term Structure of Returns: Should Central Banks Fill Gaps or Remove Volatility?," 2016 Meeting Papers 742, Society for Economic Dynamics.
    17. repec:eee:jfinec:v:126:y:2017:i:3:p:668-688 is not listed on IDEAS
    18. AJ A. Bostian & Christoph Heinzel, 2016. "Consumption Smoothing and Precautionary Saving under Recursive Preferences," FOODSECURE Working papers 44, LEI Wageningen UR.
    19. P. Lopez, 2014. "The Term Structure of the Welfare Cost of Uncertainty," Working papers 521, Banque de France.
    20. Ravi Bansal & Hengjie Ai, 2016. "Macro Announcement Premium and Risk Preferences," 2016 Meeting Papers 715, Society for Economic Dynamics.
    21. Elena Mattana & Ettore Panetti, 2017. "The Welfare Costs of Self-Fulfilling Bank Runs," Working Papers REM 2017/17, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    22. Frank N. Caliendo & Aspen Gorry & Sita Slavov, 2015. "The Cost of Uncertainty about the Timing of Social Security Reform," NBER Working Papers 21585, National Bureau of Economic Research, Inc.
    23. John H. Cochrane, 2017. "Macro-Finance," Review of Finance, European Finance Association, vol. 21(3), pages 945-985.
    24. Lopez, Pier & Lopez-Salido, J. David & Vazquez-Grande, Francisco, 2015. "Nominal Rigidities and the Term Structures of Equity and Bond Returns," Finance and Economics Discussion Series 2015-64, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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