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Intertemporal Asset Pricing

Evidence from Germany

  • Bernd Meyer

Part of the Contributions to Economics book series (CE)

Table of contents

  1. Front Matter
    Pages I-XII
  2. Introduction

    1. Bernd Meyer
      Pages 1-12
  3. Intertemporal Asset Pricing: Theory

  4. Intertemporal Asset Pricing: Empirical Analysis

    1. Front Matter
      Pages 107-107
    2. Bernd Meyer
      Pages 109-138
    3. Bernd Meyer
      Pages 159-220
    4. Bernd Meyer
      Pages 241-247
  5. Back Matter
    Pages 249-289

About this book

Introduction

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.

Keywords

Analysis Arbitrage Asset Pricing Intertemporal Equilibrium Models Intertemporale Gleichgewichtsmodelle Investment Portfolio Rating

Authors and affiliations

  • Bernd Meyer
    • 1
  1. 1.Frankfurt am MainGermany

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-642-58672-9
  • Copyright Information Physica-Verlag Heidelberg 1999
  • Publisher Name Physica, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-7908-1159-9
  • Online ISBN 978-3-642-58672-9
  • Series Print ISSN 1431-1933
  • Buy this book on publisher's site
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