S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2012/13:
What Puzzles? New insights in asset pricing

Knut K. Aase ()

Abstract: Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in continuous time. In a representative-agent framework our model allows for the separation of risk aversion from the time preference. We demonstrate how this separation gives new insights in asset pricing: The expressions for risk premiums combine the market-based CAPM with the consumption-based CAPM. The equilibrium real interest rate now combines characterizations of preferences and market returns. This model explains both the Equity Premium Puzzle and the Risk-Free Rate Puzzle with good margin, and give solutions consistent with early resolution of uncertainty.

Keywords: The equity premium puzzle; the risk-free rate puzzle; recursive utility; early resolution; utility gradients; dynamic programming; The Stern Review; (follow links to similar papers)

JEL-Codes: D51; D53; D90; E21; G10; G12; (follow links to similar papers)

34 pages, November 16, 2012

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

164208    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:nhhfms:2012_013 This page was generated on 2014-12-14 19:25:16