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Risk aversion, multivariate proxies and the behavior of asset returns

Author

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  • Kim Nummelin

    (Swedish School of Economics and Business Administration, Finland)

Abstract

An asset pricing model with constant relative risk aversion (CRRA) is tested with data from Sweden for the period 1977-1990. As a proxy for consumption growth, we employ a return based mimicking portfolio. We find that significant structural shifts in the model parameters occur between 1977-83 and 1984-90. The results indicate that the goodness-of-fit for the model in the two subperiods is fairly good and the estimates of CRRA seem reasonable. However, contrary to the cross-sectional implications of the model, CRRAs implied from individual assets differ a lot from each other.

Suggested Citation

  • Kim Nummelin, 1994. "Risk aversion, multivariate proxies and the behavior of asset returns," Finnish Economic Papers, Finnish Economic Association, vol. 7(2), pages 94-107, Autumn.
    • Handle: RePEc:fep:journl:v:7:y:1994:i:2:p:94-107
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    References listed on IDEAS

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    JEL classification:

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

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