Asset Pricing under Quantile Utility Maximization

Bruno Giovannetti

No 2012_16, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: "Focus on the downside, and the upside will take care of itself" is a famous quote among professional investors. By considering an agent who follows this advice, we reproduce the first and second moments of stock returns, risk-free rate and consumption growth. The agent´s behavior towards risk is analogous to a relative risk aversion of about 3 under expected utility, the elasticity of intertemporal substitution is about 0.5 and the time discount factor is below 1. In particular, the proposed model separates time and risk preferences in an innovative way.

Keywords: asset prices; asymmetric preferences; quantile utility (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2012-09-10
New Economics Papers: this item is included in nep-upt
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Journal Article: Asset pricing under quantile utility maximization (2013)
Journal Article: Asset pricing under quantile utility maximization (2013)
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