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The Implications of First-Order Risk Aversion for Asset Market Risk Premiums
16 references·12 citing·42 second hop
The Implications of First-Order Risk Aversion for Asset Market Risk Premiums (1994)The Implications of First-Order Risk Aver…By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior (1999)By Force of Habit: A Consumpt…Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets (1992)Characterizing Predictable Co…The World Price of Covariance Risk (1991)The World Price of Covariance…Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models (1991)Quadrature-Based Methods for …A Theory of Disappointment Aversion (1991)A Theory of Disappointment Av…Implications of Security Market Data for Models of Dynamic Economies (1990)Implications of Security Mark…First order versus second order risk aversion (1990)First order versus second ord…Intertemporal Substitution in Consumption (1988)Intertemporal Substitution in…The Role of Conditioning Information in Deducing Testable Restrictions Implied by Dynamic Asset Pricing Models (1987)The Role of Conditioning Info…Functional equivalence between liquidity costs and the utility of money (1986)Functional equivalence betwee…The information in the term structure (1984)The information in the term s…Forward and spot exchange rates (1984)Forward and spot exchange rat…Interest rates and currency prices in a two-country world (1982)Interest rates and currency p…Intertemporal Substitution in Consumption (1981)Intertemporal Substitution in…Macroeconomics and Reality (1980)Macroeconomics and RealityA critique of the asset pricing theory's tests Part I: On past and potential testability of the theory (1977)A critique of the asset prici…Exchange Rates, Interest Rates, and the Risk Premium (2015)Exchange Rates, Interest Rate…Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance (2008)Variable Rare Disasters: An E…The Loss Aversion/Narrow Framing Approach to the Equity Premium Puzzle (2006)The Loss Aversion/Narrow Fram…The Loss Aversion / Narrow Framing Approach to the Equity Premium Puzzle (2006)The Loss Aversion / Narrow Fr…Incomplete Information Processing: A Solution to the Forward Discount Puzzle (2006)Incomplete Information Proces…The Forward Bias Puzzle and Nonlinearity in Deviations from Uncovered Interest Parity: A New Perspective (2005)The Forward Bias Puzzle and N…Coexistence of disposition investors and momentum traders in stock markets: experimental evidence (2003)Coexistence of disposition in…Downside Risk and the Momentum Effect (2001)Downside Risk and the Momentu…Downside Correlation and Expected Stock Returns (2001)Downside Correlation and Expe…Why Stocks May Disappoint (2000)Why Stocks May DisappointStock and Bond Pricing in an Affine Economy (1999)Stock and Bond Pricing in an …Affine Models of Currency Pricing (1996)Affine Models of Currency Pri…CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK* (1964)The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets (1965)Risk, Return, and Equilibrium: Empirical Tests (1973)The relationship between return and market value of common stocks (1981)Efficient Capital Markets: II (1991)Multifactor Explanations of Asset Pricing Anomalies (1996)Pitfalls in Financial Model-Building (1968)Conditional logit analysis of qualitative choice behavior (1972)"Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule (1975)Time to Build and Aggregate Fluctuations (1982)Postwar U.S. Business Cycles: An Empirical Investigation (1997)Generalized impulse response analysis in linear multivariate models (1998)Immiserizing Growth: A Geometrical Note (1958)Theory of Value (1959)Asset Prices in an Exchange Economy (1978)Trying to Explain Home Bias in Equities and Consumption (1999)The Economics of Exchange Rates (2003)Real-time price discovery in global stock, bond and foreign exchange markets (2007)Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence (1978)The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors (1988)Habit Formation: A Resolution of the Equity Premium Puzzle (1990)Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles (2000)Disappointment in Decision Making Under Uncertainty (1985)Prospect theory: An analysis of decision under risk (1988)Dynamic Asset Pricing Theory. (1993)Investor Psychology and Asset Pricing (2001)The jump-risk premia implicit in options: evidence from an integrated time-series study (2002)The Behavior of Stock-Market Prices (1965)The Risk and Predictability of International Equity Returns (1993)Liquidity and Expected Returns: Lessons from Emerging Markets (2007)Common Risk Factors in Currency Markets (2011)THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.] (1975)The arbitrage theory of capital asset pricing (1976)Time-varying conditional covariances in tests of asset pricing models (1989)Distribution-free estimation of some nonlinear panel data models (1999)The conditional CAPM does not explain asset-pricing anomalies☆ (2006)Long memory processes and fractional integration in econometrics (1996)Predictive regressions (1999)Presidential Address: Discount Rates (2011)The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors (1986)Investor Psychology and Security Market Under‐ and Overreactions (1998)Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles (2008)
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References

  • 1980Macroeconomics and Reality12,826 cited
  • 1999By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior5,088 cited
  • 1977A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory3,006 cited
  • 1984Forward and spot exchange rates2,167 cited
  • 1988Intertemporal Substitution in Consumption1,567 cited
  • 1981Intertemporal Substitution in Consumption1,397 cited
  • 1991A Theory of Disappointment Aversion1,343 cited
  • 1982Interest rates and currency prices in a two-country world1,256 cited
  • 1991The World Price of Covariance Risk1,139 cited
  • 1987The Role of Conditioning Information in Deducing Testable Restrictions Implied by Dynamic Asset Pricing Models980 cited
  • 1991Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models926 cited
  • 1984The information in the term structure659 cited
  • 1986Functional equivalence between liquidity costs and the utility of money616 cited
  • 1992Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets499 cited
  • 1990Implications of Security Market Data for Models of Dynamic Economies

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498 cited
  • 1990First order versus second order risk aversion401 cited
  • Cited by

    • 2006The Loss Aversion / Narrow Framing Approach to the Equity Premium Puzzle60 cited
    • 2008Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance60 cited
    • 1999Stock and Bond Pricing in an Affine Economy53 cited
    • 2006The Loss Aversion/Narrow Framing Approach to the Equity Premium Puzzle51 cited
    • 1996Affine Models of Currency Pricing49 cited
    • 2001Downside Risk and the Momentum Effect47 cited
    • 2003Coexistence of disposition investors and momentum traders in stock markets: experimental evidence44 cited
    • 2000Why Stocks May Disappoint41 cited
    • 2001Downside Correlation and Expected Stock Returns37 cited
    • 2015Exchange Rates, Interest Rates, and the Risk Premium29 cited
    • 2006Incomplete Information Processing: A Solution to the Forward Discount Puzzle23 cited
    • 2005The Forward Bias Puzzle and Nonlinearity in Deviations from Uncovered Interest Parity: A New Perspective14 cited