Contributions to Economics

Intertemporal Asset Pricing

Evidence from Germany

Authors: Meyer, Bernd

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In the mid-eighties Mehra and Prescott showed that the risk premium earned by American stocks cannot reasonably be explained by conventional capital market models. Using time additive utility, the observed risk pre­ mium can only be explained by unrealistically high risk aversion parameters. This phenomenon is well known as the equity premium puzzle. Shortly aft­ erwards it was also observed that the risk-free rate is too low relative to the observed risk premium. This essay is the first one to analyze these puzzles in the German capital market. It starts with a thorough discussion of the available theoretical mod­ els and then goes on to perform various empirical studies on the German capital market. After discussing natural properties of the pricing kernel by which future cash flows are translated into securities prices, various multi­ period equilibrium models are investigated for their implied pricing kernels. The starting point is a representative investor who optimizes his invest­ ment and consumption policy over time. One important implication of time additive utility is the identity of relative risk aversion and the inverse in­ tertemporal elasticity of substitution. Since this identity is at odds with reality, the essay goes on to discuss recursive preferences which violate the expected utility principle but allow to separate relative risk aversion and intertemporal elasticity of substitution.

Table of contents (10 chapters)

Table of contents (10 chapters)

Buy this book

eBook $84.99
price for USA (gross)
  • ISBN 978-3-642-58672-9
  • Digitally watermarked, DRM-free
  • Included format: PDF
  • ebooks can be used on all reading devices
  • Immediate eBook download after purchase
Softcover $109.00
price for USA
  • ISBN 978-3-7908-1159-9
  • Free shipping for individuals worldwide
  • Usually dispatched within 3 to 5 business days.

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Bibliographic Information

Bibliographic Information
Book Title
Intertemporal Asset Pricing
Book Subtitle
Evidence from Germany
Authors
Series Title
Contributions to Economics
Copyright
1999
Publisher
Physica-Verlag Heidelberg
Copyright Holder
Springer-Verlag Berlin Heidelberg
eBook ISBN
978-3-642-58672-9
DOI
10.1007/978-3-642-58672-9
Softcover ISBN
978-3-7908-1159-9
Series ISSN
1431-1933
Edition Number
1
Number of Pages
XII, 287
Number of Illustrations
5 b/w illustrations
Topics