Article ID Journal Published Year Pages File Type
5069825 Finance Research Letters 2010 8 Pages PDF
Abstract

This paper studies the implications of model uncertainty under stochastic volatility model for equilibrium asset pricing. We derive the equilibrium equity premium and risk-free rate in a pure-exchange economy with one representative agent who is averse not only to risk but also to model uncertainty. The results show that robustness increases the equilibrium equity premium while lowers the risk-free rate.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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