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Risk Aversion and Stock Prices


  • Ray Fair


This paper uses data on companies that have been in the S&P 500 index since 1957 to examine whether risk aversion has decreased since 1995. The evidence suggests that it has not. There is no evidence that more risky companies have had larger increases in their price-earnings ratios since 1995 than less risky companies.

Suggested Citation

  • Ray Fair, 2002. "Risk Aversion and Stock Prices," Yale School of Management Working Papers ysm311, Yale School of Management, revised 01 Aug 2007.
  • Handle: RePEc:ysm:somwrk:ysm311

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    References listed on IDEAS

    1. Welch, Ivo, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," The Journal of Business, University of Chicago Press, vol. 73(4), pages 501-537, October.
    2. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
    3. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    4. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    5. Jeremy J. Siegel & Richard H. Thaler, 1997. "Anomalies: The Equity Premium Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 191-200, Winter.
    6. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
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    More about this item


    Risk Aversion; Stock Prices;

    JEL classification:

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


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