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dc.contributor.authorLettau, Martinen_US
dc.date.accessioned2012-08-17T14:25:33Z-
dc.date.available2012-08-17T14:25:33Z-
dc.date.issued2001en_US
dc.identifier.urihttp://hdl.handle.net/10419/60568-
dc.description.abstractThis paper uses Hansen and Jagannathan's (1991) volatility bounds to evaluate models with idiosyncratic consumption risk. I show that idiosyncratic risk does not change the volatility bounds at all when consumers have CRRA preferences and the distribution of the idiosyncratic shock is independent of the aggregate state. Following Mankiw (1986), I then show that idiosyncratic risk can help to enter the bounds when idiosyncratic uncertainty depends on the aggregate state of the economy. Since individual consumption data are not reliable, I compute an upper bound of the volatility bounds using individual income data and assume that agents have to consume their endowment. I find that the model does not pass the Hansen and Jagannathan test even for very volatile idiosyncratic income data.en_US
dc.language.isoengen_US
dc.publisherFederal Reserve Bank of New York New York, NYen_US
dc.relation.ispartofseriesStaff Report, Federal Reserve Bank of New York 130en_US
dc.subject.jelE44en_US
dc.subject.jelG11en_US
dc.subject.jelG12en_US
dc.subject.ddc330en_US
dc.subject.keywordidiosyncratic risk, risk premia, volatility bounds, asset prices, incomplete marketsen_US
dc.subject.stwCapital Asset Pricing Modelen_US
dc.subject.stwRisikoen_US
dc.subject.stwRisikoprämieen_US
dc.subject.stwVolatilitäten_US
dc.subject.stwVerbraucherausgabenen_US
dc.subject.stwTheorieen_US
dc.titleIdiosyncratic risk and volatility bounds, or can models with idiosyncratic risk solve the equity premium puzzle?en_US
dc.typeWorking Paperen_US
dc.identifier.ppn331604086en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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