NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Much Would You Pay to Resolve Long-Run Risk?

Larry G. Epstein, Emmanuel Farhi, Tomasz Strzalecki

NBER Working Paper No. 19541
Issued in October 2013
NBER Program(s):   AP   EFG   IFM

Though risk aversion and the elasticity of intertemporal substitution have been the subjects of careful scrutiny when calibrating preferences, the long-run risks literature as well as the broader literature using recursive utility to address asset pricing puzzles have ignored the full implications of their parameter specifications. Recursive utility implies that the temporal resolution of risk matters and a quantitative assessment of how much it matters should be part of the calibration process. This paper gives a sense of the magnitudes of implied timing premia. Its objective is to inject temporal resolution of risk into the discussion of the quantitative properties of long-run risks and related models.

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Document Object Identifier (DOI): 10.3386/w19541

Published: Larry G. Epstein & Emmanuel Farhi & Tomasz Strzalecki, 2014. "How Much Would You Pay to Resolve Long-Run Risk?," American Economic Review, American Economic Association, American Economic Association, vol. 104(9), pages 2680-97, September. citation courtesy of

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