Estimation of Relative Risk Aversion Across Time
18 Pages Posted: 5 Oct 2017
Date Written: August 2016
Abstract
This paper examines relative risk aversion in the framework of a three moment asset pricing model that accounts for skewness. Accounting for skewness in calculating risk aversion gives a more accurate series of estimates of risk aversion and helps to reconcile the wide disparity in risk coefficients found in past literature. Risk aversion coefficients are calculated from 1926 to 2014 using stock market returns. This procedure results in a time series of data that can be related to other variables such as real interest rates and changes in demand for various asset classes.
Keywords: Risk Aversion, CRRA, Financial Stability
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