Disentangling the Coefficient of Relative Risk Aversion from the Elasticity of Intertemporal Substitution: An Irrelevance Result

Narayana Kocherlakota

Journal of Finance, 1990, vol. 45, issue 1, 175-90

Abstract: For homothetic time and state separable preferences, the coefficient of relative risk aversion is equal to the reciprocal of the elasticity of intertemporal substitution. This paper shows that, when the growth rate of consumption is independent and identically distributed, asset pricing models based upon preferences in which the coefficient of relative risk aversion and the elasticity of intertemporal substitution are no longer linked do not have more explanatory power. Further, in these stochastic environments, estimates of the coefficient of relative risk aversion in the standard preferences are measures of the true coefficient of relative risk aversion and not the elasticity of intertemporal substitutions. These results are fairly accurate descriptions of economies calibrated using United States annual data. Copyright 1990 by American Finance Association.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819900 ... O%3B2-G&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:45:y:1990:i:1:p:175-90

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().