TIME VARIABILITY IN MARKET RISK AVERSION |
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Authors: | Dave Berger,H. J. Turtle&dagger |
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Affiliation: | Oregon State University; Washington State University |
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Abstract: | We adopt realized covariances to estimate the coefficient of risk aversion across portfolios and through time. Our approach yields second moments that are free from measurement error and not influenced by a specified model for expected returns. Supporting the permanent income hypothesis, we find risk aversion responds to consumption-smoothing behavior. As income increases, or as the consumption-to-income ratio falls, relative risk aversion decreases. We also document variation in risk aversion across portfolios: risk aversion is highest for small and value portfolios. |
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Keywords: | E32 G12 |
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