Intellectual Contribution by George Li

Contribution Title

Low Risk Aversion and Aggregate Stock Market Behavior

Publication

Journal of Economics and Dynamics Control

Co-author

Year

2007

Description

This paper studies whether investors' high risk aversion can be avoided in a representative agent model that is able to explain aggregate stock market behavior in the US financial market. We present a consumption-based asset pricing model with a representative agent who has a "catching up with the Joneses" preference to show that high risk aversion can be avoided in a representative agent model that can help explain many of the empirically observed properties of the aggregate stock market return, including the equity premium and risk-free rate puzzles, the predictability of long-horizon stock returns, and the "leverage effect" in return volatility.

Complete Citation

Website

See Faculty: George Li