Evidence for state and time nonseparable preferences: the case of Finland

Nader Shahzad Virk

Applied Financial Economics, 2013, vol. 23, issue 24, 1821-1838

Abstract: Preferential modifications to the standard state and time separable power utility are studied for the Finnish equity and bond returns. The reported ambivalence of the high equity premium and low Sharpe ratio makes the Finnish market an important case study. The estimations of the Epstein and Zin (1991) recursive utility and the Campbell and Cochrane (1999) habit formation preferences show that Finnish risk premia are time-varying across samples. Moreover, the results demonstrate that stronger time preferences improve the explanation of asset returns for the modified preferences more so than assuming tighter time preference and higher risk aversion (RA). We conclude that the Campbell--Cochrane-based pricing kernel outperforms the competing models in generating plausible model parameters and suppressing specification errors. The study supports the US evidence relative to the conclusions drawn from the European economies in comparable studies.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2013.854297 (text/html)
Access to full text is restricted to subscribers.

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:taf:apfiec:v:23:y:2013:i:24:p:1821-1838

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2013.854297

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().