Time-varying risk aversion and unexpected inflation
نویسندگان
چکیده
We formulate a consumption-based asset pricing model in which aggregate risk aversion is time-varying in response to both news about consumption growth (as in a habit formation model) and news about inflation. We estimate our model and explore its pricing implications for the term structure of interest rates and the cross-section of stock returns. Our empirical results support the hypothesis that aggregate risk aversion varies in response to news about inflation. The induced time-variation in risk aversion does not appear to proxy for inflation uncertainty or economic growth. r 2003 Elsevier B.V. All rights reserved. JEL classification: G10; G12; E43; E44
منابع مشابه
Time-Varying Risk Aversion and Unexpected Inflation∗ Unpublished Technical Appendix
where wt+n = [xt+1, x ′ t+2, . . . , x ′ t+n] ′ for a positive integers n. The conditional expectation is taken with respect to the distribution of the vector ηt+n =[εt+1, ε ′ t+2, . . . , ε ′ t+n] ′, given wt+n is generated by the recursion (A.1). β ∈ B is a vector of parameters. In our application, f is the vector of nominal discount bond prices, g is the vector of corresponding pricing kerne...
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