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Time Variability In Market Risk Aversion

Academic Journal

Time variability in market risk aversion

David Berger and Harry Turtle "Journal of Financial Research" 23 pages 2009

http://www.blackwellpublishing.com/journal.asp?ref=0270-2592 Cite this Publication
Journal Details

Journal of Financial Research, 2009 Vol. 32 Issue 3 Pages 285-307

Keywords
Finance
Journal Article, Academic Journal

Overview

We adopt realized covariances to estimate the coefficient of risk aversion across portfolios and through time. Our approach yields second moments that are free from measurement error and not influenced by a specified model for expected returns. Supporting the permanent income hypothesis, we find risk aversion responds to consumption smoothing behavior. As income increases, or as the ratio of consumption-to-income falls, relative risk aversion decreases. We also document variation in risk aversion across portfolios: risk aversion is highest for small and value portfolios.

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