| Aggregate stock market behavior and investors' low risk aversion | |||||||
Abstract | |||||||
| 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. | |||||||
Publication details | |||||||
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