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, 2008.
"The elasticity of intertemporal substitution: new evidence from 401(k) participation,"
0812, Federal Reserve Bank of Dallas.
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- 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.
- 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 Bonomo & René Garcia, 1994. "Disappointment Aversion as a Solution to the Equity Premium and the Risk-Free Rate Puzzles," CIRANO Working Papers 94s-14, CIRANO.
- 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).
- Ilan Cooper, 2009. "Time-Varying Risk Premiums and the Output Gap," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2601-2633, July.
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