Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
959856 | Journal of Financial Economics | 2015 | 22 Pages |
Abstract
This paper considers asset pricing models with stochastic differential utility incorporating decision makers׳ concern with ambiguity on true probability measure. Under a representative agent setting, we empirically evaluate alternative preference specifications including a multiple-priors recursive utility. We find that relative risk aversion is estimated around 1-8 with ambiguity aversion and 7.4-15 without ambiguity aversion. Estimated ambiguity aversion is both economically and statistically significant and can explain up to 45% of the average equity premium. The elasticity of intertemporal substitution is higher than one, but its identification appears to be weak, as observed by previous authors.
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Authors
Daehee Jeong, Hwagyun Kim, Joon Y. Park,