Time-Additive Consumption-Wealth Utility

30 Pages Posted: 19 Aug 2011 Last revised: 26 Jan 2012

See all articles by Jonathan E. Ingersoll

Jonathan E. Ingersoll

Yale School of Management - International Center for Finance

Date Written: August 18, 2011

Abstract

This paper presents a new model of time-additive consumption-wealth utility. Like recursive utility, this model separates the roles of risk aversion and the intertemporal elasticity of consumption allowing it to be calibrated to a wider variety of data. Indeed, the observed equity premium and low interest rate – the joint puzzle of the equity premium puzzle – can be explained within this model without requiring a large relative risk aversion.

Keywords: intertemporal models, non-standard utility, portfolio models, consumption models

JEL Classification: D11, D91, G11, G12

Suggested Citation

Ingersoll, Jonathan E., Time-Additive Consumption-Wealth Utility (August 18, 2011). Available at SSRN: https://ssrn.com/abstract=1912075 or http://dx.doi.org/10.2139/ssrn.1912075

Jonathan E. Ingersoll (Contact Author)

Yale School of Management - International Center for Finance ( email )

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