Agents' Preferences, the Equity Premium, and the Consumption-Saving Trade-Off: An Application to French Data

 
Author/Editor: Epaulard, Anne ; Pommeret, Aude
 
Publication Date: August 01, 2001
 
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Summary: This paper aims to measure the risk premium on French equities during 1960-92 and to evaluate how well theoretical models based on various representations of agents' preferences can explain it. Aside from the standard, time-additive utility function with constant relative risk aversion, three other utility functions are reviewed: a recursive utility function, a habit formation utility function, and a utility function that accounts for the interdependence of preferences. Both calibration and econometric estimations show that none of the studied marginal changes in the representation of agents' preferences are sufficient to solve both the equity premium puzzle and the risk-free rate puzzle.
 
Series: Working Paper No. 01/117
Subject(s): Risk premium | France | Consumption | Savings | Economic models

Author's Keyword(s): Equity premium | puzzle | risk-free rate puzzle
 
English
Publication Date: August 01, 2001
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA1172001 Pages: 36
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