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How much would you pay to resolve long-run risk?

Listed author(s):
  • Tomasz Strzalecki

    (Harvard University)

  • Emmanuel Farhi

    (Harvard)

  • Larry Epstein

    (Boston University)

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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Paper provided by Society for Economic Dynamics in its series 2014 Meeting Papers with number 429.

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Date of creation: 2014
Handle: RePEc:red:sed014:429
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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