2008/03/01 by Motohiro Yogo
Business, Management and Accounting · Economics, Econometrics and Finance · #Financial Literacy, Pension, Retirement Analysis #Financial Markets and Investment Strategies #Monetary Policy and Economic Impact
paper · doi:10.1198/073500107000000205
openalex publication_date 2008/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This article explains the high level and the countercyclical variation of the equity premium in a consumption-based asset pricing model with low large-scale risk aversion. Investors have gain-loss utility over consumption relative to slowly time-varying habit. Stocks deliver low returns in recessions when consumption falls below habit; investors therefore require a high premium for holding stocks. The model's conditional moment restrictions are tested on consumption and asset returns data. The empirical estimate of large-scale risk aversion is low, whereas the estimate of loss aversion agrees with prior experimental evidence.