The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models

Andreasen, Martin M.; Jørgensen, Kasper

doi:10.1016/j.jmoneco.2019.01.008

“…It is common in the asset pricing literature to estimate models using a simulated method of moments procedure (eg., Adam et al, 2016;Albuquerque et al, 2016;Andreasen and Jørgensen, 2019). We build on the existing methodology in two ways.…”

Section: Introductionmentioning

confidence: 99%

Informality and bank stability

Liu-Evans

¹

,

Mitra

²

2019

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This paper shows the recent success of valuation risk (time-preference shocks in Epstein-Zin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. When we revise the preferences to satisfy the restriction in a simple asset pricing model, the puzzles resurface. However, when estimating a sequence of Bansal-Yaron long-run risk models, we find valuation risk under the revised specification consistently improves the ability of the models to match asset price and cash-flow dynamics.

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“…It is common in the asset pricing literature to estimate models using a simulated method of moments procedure (eg., Adam et al, 2016;Albuquerque et al, 2016;Andreasen and Jørgensen, 2019). We build on the existing methodology in two ways.…”

Section: Introductionmentioning

confidence: 99%

“…Andreasen and Jørgensen (2019) show how to decouple the agent's timing attitude from the RA and IES values.8 In total, there are 89 periods in our sample, but we lose one period for growth rates and one for serial correlations.…”

mentioning

confidence: 99%

Valuation Risk Revalued

Groot¹,

Richter²,

2019

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This paper shows the recent success of valuation risk (time-preference shocks in Epstein-Zin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. When we revise the preferences to satisfy the restriction in a simple asset pricing model, the puzzles resurface. However, when estimating a sequence of Bansal-Yaron long-run risk models, we find valuation risk under the revised specification consistently improves the ability of the models to match asset price and cash-flow dynamics.

show abstract

Equilibrium asset pricing with short rate risk

Sbuelz

2024

Decisions Econ Finan

0

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The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models

Cited by 19 publications

References 30 publications

Informality and bank stability

Informality and bank stability

Valuation Risk Revalued

Equilibrium asset pricing with short rate risk

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