EconPapers    
Economics at your fingertips  
 

Valuation Risk Revalued

Oliver de Groot, Alexander Richter () and Nathaniel Throckmorton

No 201904, Working Papers from University of Liverpool, Department of Economics

Abstract: This paper shows the recent success of valuation risk (time-preference shocks in EpsteinZin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. When we revise the preferences to satisfy the restriction in a simple asset pricing model, the puzzles resurface. However, when estimating a sequence of Bansal-Yaron long-run risk models, we find valuation risk under the revised specification consistently improves the ability of the models to match asset price and cash-flow dynamics.

Keywords: Epstein-Zin Utility; Asset Pricing; Equity Premium Puzzle; Risk-Free Rate Puzzle (search for similar items in EconPapers)
JEL-codes: D81 G12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-07
New Economics Papers: this item is included in nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Forthcoming

Downloads: (external link)
https://www.liverpool.ac.uk/media/livacuk/schoolof ... on,Risk,Revalued.pdf First version, 2019 (application/pdf)

Related works:
Working Paper: Valuation Risk Revalued (2020) Downloads
Working Paper: Valuation Risk Revalued (2018) Downloads
Working Paper: Valuation Risk Revalued (2018) Downloads
Working Paper: Valuation Risk Revalued (2018) Downloads
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:liv:livedp:201904

Access Statistics for this paper

More papers in Working Papers from University of Liverpool, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rachel Slater ().

 
Page updated 2021-07-26
Handle: RePEc:liv:livedp:201904