EconPapers    
Economics at your fingertips  
 

Valuation Risk Revalued

Oliver de Groot, Alexander Richter () and Nathaniel A. Throckmorton ()
Additional contact information
Nathaniel A. Throckmorton: College of William & Mary

No 201803, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: This paper shows the recent success of valuation risk (time-preference shocks in Epstein- Zin 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. In a Bansal-Yaron long-run risk model, our revised valuation risk specification that satisfies the restriction provides a superior empirical fit. The results also show that valuation risk no longer has a major role in matching the mean equity premium and risk-free rate but is crucial for matching the volatility and autocorrelation of the risk-free rate.

Keywords: Epstein-Zin Utility; Valuation Risk; Equity Premium Puzzle; Risk-Free Rate Puzzle (search for similar items in EconPapers)
JEL-codes: D81 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2018-12-17
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.st-andrews.ac.uk/~wwwecon/repecfiles/2/1803.pdf (application/pdf)

Related works:
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:san:cdmawp:1803

Access Statistics for this paper

More papers in CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis School of Economics and Finance, University of St. Andrews, Fife KY16 9AL. Contact information at EDIRC.
Bibliographic data for series maintained by the School of Economics ().

 
Page updated 2019-04-15
Handle: RePEc:san:cdmawp:1803