The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models

46 Pages Posted: 8 Dec 2016

See all articles by Martin M. Andreasen

Martin M. Andreasen

Aarhus University; CREATES, Aarhus University

Kasper Jørgensen

Federal Reserve Board

Date Written: December 6, 2016


This paper introduces a new utility kernel for Epstein-Zin-Weil preferences to obtain greater flexibility in setting the intertemporal elasticity of substitution, the relative risk aversion (RRA), and the timing attitude compared to their standard implementation. We show that these new preferences resolve a puzzle in the long-run risk model, where consumption growth is too strongly correlated with the price-dividend ratio and the risk-free rate. The proposed preferences also resolve the puzzlingly high RRA in DSGE models, by enabling an otherwise standard New Keynesian model to match the equity premium and the bond premium with a low RRA of 5.

Keywords: Bond premium puzzle, Equity premium puzzle, Early Resolution of Uncertainty, Long-run risk

JEL Classification: E44, G12

Suggested Citation

Andreasen, Martin M. and Jørgensen, Kasper, The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models (December 6, 2016). Available at SSRN: or

Martin M. Andreasen (Contact Author)

Aarhus University ( email )


CREATES, Aarhus University ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C


Kasper Jørgensen

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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