Asset Pricing under Quantile Utility Maximization
"Focus on the downside, and the upside will take care of itself" is a famous quote among professional investors. By considering an agent who follows this advice, we reproduce the first and second moments of stock returns, risk-free rate and consumption growth. The agent´s behavior towards risk is analogous to a relative risk aversion of about 3 under expected utility, the elasticity of intertemporal substitution is about 0.5 and the time discount factor is below 1. In particular, the proposed model separates time and risk preferences in an innovative way.
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- Engelhardt, Gary V. & Kumar, Anil, 2009.
"The elasticity of intertemporal substitution: New evidence from 401(k) participation,"
Elsevier, vol. 103(1), pages 15-17, April.
- Gary V. Engelhardt & Anil Kumar, 2008. "The elasticity of intertemporal substitution: new evidence from 401(k) participation," Working Papers 0812, Federal Reserve Bank of Dallas.
- Marco Bonomo & René Garcia, 1994.
"Disappointment Aversion as a Solution to the Equity Premium and the Risk-Free Rate Puzzles,"
CIRANO Working Papers
- Garcia, R. & Bonomo, M., 1993. "Disappointment Aversion as a Solution to the Equity Premium and the Risk- Free Rate Puzzles," Cahiers de recherche 9334, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Marco Antonio Bonomo & Rene Garcia, 1993. "Disappointment aversion as a solution to the equity premium and the risk-free rate puzzles," Textos para discussão 308, Department of Economics PUC-Rio (Brazil).
- Bruno Feunou & Mohammad R. Jahan-Parvar & Roméo Tédongap, 2013. "Modeling Market Downside Volatility," Review of Finance, European Finance Association, vol. 17(1), pages 443-481.
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