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Asset pricing under quantile utility maximization
Authors:Bruno C. Giovannetti
Affiliation:Department of Economics, University of Sao Paulo, Brazil
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 toward 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:G11  G12  Asset prices  Downside risk  Quantile utility
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