Gambling, Risk Appetite and Asset Pricing

Carlos Carvalho, Daniel Cordeiro, Ruy Ribeiro and Eduardo Zilberman
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Daniel Cordeiro: XP Investimentos
Ruy Ribeiro: PUC-Rio

No 664, Textos para discussão from Department of Economics PUC-Rio (Brazil)

Abstract: A measure of the propensity to gamble in casinos constructed without any asset price data provides relevant information for asset pricing. This measure of risk appetite improves the fit of conditional asset pricing models such as the conditional CAPM, explains crosssectional differences in future returns for portfolios sorted on various characteristics, and helps forecast market and portfolio excess returns. The relationship between risk appetite and asset prices appears to be mainly explained by simultaneous changes in risk and risk premia.

Keywords: Asset Pricing; Cross-Section; Predictability; Factors; CAPM; Conditional Model; Gambling; Casino. JEL Classification: G12; G02. (search for similar items in EconPapers)
Pages: 59p
Date: 2018-03
New Economics Papers: this item is included in nep-ifn
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