Risk Aversion and Determinants of Stock Market Behavior

Robert Pindyck

The Review of Economics and Statistics, 1988, vol. 70, issue 2, 183-90

Abstract: A structural model of equity pricing is developed to address two related questions. First, to what extent do unanticipate d changes in such "fundamental" variables as profitability, real in terest rates, inflation, and the variance of returns explain observed stock returns? Second, how risk averse are investors in the aggregat e? The author finds that the pretax profit rate and the variance of r eturns are both significant explainers of the market, and interest ra tes somewhat less so. Estimates of the index of relative risk aversio n put that parameter in the range of 3 to 4. Copyright 1988 by MIT Press.

Date: 1988
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Working Paper: Risk aversion and determinants of stock market behavior (1986)
Working Paper: Risk Aversion and Determinants of Stock Market Behavior (1986)
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