Risk aversion heterogeneity and the investment-uncertainty relationship

Gianluca Femminis

No itemq1260, DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: A simple dynamic general equilibrium model of savings and investment is populated by agents with Kreps-Porteus preferences. Households are heterogeneous in their risk aversion, which explains the negative relationship between aggregate investment and aggregate uncertainty. Agents trade a riskless assets to share the aggregate risk, so that in equilibrium a higher uncertainty induces the low risk-averse individuals to increase their position in the risky asset, and the highly risk averse agents to increase their share of safe bonds. This portfolio effect increases the certainty-equivalent future returns; in response to this rise, savings and investment decrease due to a limited willingness to substitute consumption over time.

Keywords: Aggregate investment; uncertainty; risk aversion; heterogeneity. (search for similar items in EconPapers)
JEL-codes: D92 E22 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-01
New Economics Papers: this item is included in nep-dge and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://istituti.unicatt.it/teoria_economica_metodi_quantitativi_itemq1260.pdf First version, 2012 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://istituti.unicatt.it/teoria_economica_metodi_quantitativi_itemq1260.pdf [301 MOVED PERMANET]--> https://istituti.unicatt.it/teoria_economica_metodi_quantitativi_itemq1260.pdf)

Related works:
Journal Article: Risk aversion heterogeneity and the investment–uncertainty relationship (2019)
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:ctc:serie6:itemq1260

Access Statistics for this paper

More papers in DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) Contact information at EDIRC.
Bibliographic data for series maintained by Gianluca Femminis ().