Asset Prices and Risk Aversion
type: Dataset
description: The standard asset pricing models (the CCAPM and the Epstein-Zin non-expected utility model) counterintuitively predict that equilibrium asset prices can rise if the representative agent's risk aversion increases. If the income effect, which implies enhanced saving as a result of an increase in risk aversion, dominates the substitution effect, which causes the representative agent to reallocate his portfolio in favour of riskless assets, the demand for securities increases. Thus, asset prices are forced to rise when the representative agent is more risk adverse. By disentangling risk aversion and intertemporal substituability, we demonstrate that the risky asset price is an increasing function of the coefficient of risk aversion only if the elasticity of intertemporal substitution (EIS) exceeds unity. This result, which was first proved par Epstein (1988) in a stationary economy setting with a constant risk aversion, is shown to hold true for non-stationary economies with a variable or constant risk aversion coefficient. The conclusion is that the EIS probably exceeds unity.
landing page: https://hal.science/hal-00955590
keyword: asset-prices
keyword: ccapm
keyword: elasticity-of-intertemporal-substitution
keyword: infoeu-reposemanticspreprint
keyword: preprints-working-papers-
keyword: qfincpquantitative-finance-q-fincomputational-finance-q-fincp
keyword: qfinprquantitative-finance-q-finpricing-of-securities-q-finpr
keyword: risk-aversion
issued: 2026-05-06T03:34:11.702829
modified: 2026-05-06T03:34:11.702835
language: en
contact point: Organization
  fn: CCSD

test_moissonnage_selune
type: Agent

Asset Prices and Risk Aversion
type: Distribution
format: HTML
access URL: https://hal.science/hal-00955590
issued: 2026-05-06T03:34:11.724811
modified: 2026-05-06T03:34:11.685649