Journal article
Horizon-dependent risk aversion and the timing and pricing of uncertainty
- Abstract:
- Inspired by experimental evidence, we amend the recursive utility model to let risk aversion decrease with the temporal horizon. Our pseudo-recursive preferences remain tractable and retain appealing features of the long-run risk framework, notably its success at explaining asset pricing moments. In addition, our model addresses two challenges to the standard model. Calibrating the agents’ preferences to explain the equity premium no longer implies an extreme preference for early resolutions of uncertainty. Horizon-dependent risk aversion helps resolve key puzzles in finance on the valuation of assets across maturities and captures the term structure of equity risk premiums and its dynamics.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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Access Document
- Files:
-
-
(Preview, Accepted manuscript, pdf, 1.9MB, Terms of use)
-
- Publisher copy:
- 10.1093/rfs/hhae049
Authors
- Publisher:
- Oxford University Press
- Journal:
- Review of Financial Studies More from this journal
- Volume:
- 37
- Issue:
- 11
- Pages:
- 3272-3334
- Publication date:
- 2024-09-05
- Acceptance date:
- 2024-06-03
- DOI:
- EISSN:
-
1465-7368
- ISSN:
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0893-9454
- Language:
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English
- Pubs id:
-
1005408
- UUID:
-
uuid_d259ef6d-5517-41b7-a695-5ab9ff80f324
- Local pid:
-
pubs:1005408
- Source identifiers:
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W3123456268
- Deposit date:
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2025-12-03
- ARK identifier:
Terms of use
- Copyright holder:
- Andries et al.
- Copyright date:
- 2024
- Rights statement:
- © The Author(s) 2024. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
- Notes:
- This is the accepted manuscript version of the article. The final version is available online from Oxford University Press at https://dx.doi.org/10.1093/rfs/hhae049
- Licence:
- Other
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