Author : Fousseni Chabi-Yo
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Book Synopsis State Dependence Can Explain the Risk Aversion Puzzle by : Fousseni Chabi-Yo
Download or read book State Dependence Can Explain the Risk Aversion Puzzle written by Fousseni Chabi-Yo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk aversion functions extracted from observed stock and option prices can be negative, as shown by Aiuml;t-Sahalia and Lo (2000), Journal of Econometrics 94: 9-51; and Jackwerth (2000), The Review of Financial Studies 13(2), 433-51. We rationalize this puzzle by a lack of conditioning on latent state variables. Once properly conditioned, risk aversion functions and pricing kernels are consistent with economic theory. To differentiate between the various theoretical explanations in terms of heterogeneity of beliefs or preferences, market sentiment, state-dependent utility, or regimes in fundamentals, we calibrate several consumption-based asset pricing models to match the empirical pricing kernel and risk aversion functions at different dates and over several years.