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Consumption volatility ambiguity and risk premium’s time-variation

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  • Müller, Janis
  • Posch, Peter N.

Abstract

In a consumption based asset pricing model one can calculate the volatility of (log-)consumption growth from the expected market return and from the risk-free rate. We propose to use the difference between these estimates to measure ambiguity about consumption volatility. Using a long dataset we show this measure explains up to 69% of post-war variation in the market risk premium.

Suggested Citation

  • Müller, Janis & Posch, Peter N., 2019. "Consumption volatility ambiguity and risk premium’s time-variation," Finance Research Letters, Elsevier, vol. 29(C), pages 336-339.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:336-339
    DOI: 10.1016/j.frl.2018.08.016
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    References listed on IDEAS

    as
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    10. Jeong, Daehee & Kim, Hwagyun & Park, Joon Y., 2015. "Does ambiguity matter? Estimating asset pricing models with a multiple-priors recursive utility," Journal of Financial Economics, Elsevier, vol. 115(2), pages 361-382.
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    More about this item

    Keywords

    Stochastic volatility; Ambiguity; Time-varying equity premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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