An interrelation of time preference and risk attitude: an application to the equity premium puzzle

Cited 1 time in webofscience Cited 0 time in scopus
  • Hit : 534
  • Download : 0
In the fields of behavioural economics and finance, several researchers show that the time preference of an investor is related to his/her attitude towards risky assets. This article investigates whether the equity premium puzzle laid out in Mehra and Prescott (1985) can be accounted for when this relation is imposed on the representative agent model of asset pricing. Three primary features of our analysis allow us to investigate the relationship. First, we derive an equation satisfied by the rate of time preference. Second, our model can yield an equity premium that is consistent with the observed data even in the standard power utility setting. Third, to fit the observed equity premium, we show that it is required to assume a negative rate of time preference, which is consistent with Kocherlakota (1996) and Brennan and Xia (2001).
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2012
Language
English
Article Type
Article
Keywords

MODEL

Citation

APPLIED ECONOMICS LETTERS, v.19, no.5, pp.483 - 486

ISSN
1350-4851
DOI
10.1080/13504851.2011.587755
URI
http://hdl.handle.net/10203/97494
Appears in Collection
MT-Journal Papers(저널논문)
Files in This Item
There are no files associated with this item.
This item is cited by other documents in WoS
⊙ Detail Information in WoSⓡ Click to see webofscience_button
⊙ Cited 1 items in WoS Click to see citing articles in records_button

qr_code

  • mendeley

    citeulike


rss_1.0 rss_2.0 atom_1.0