Gambling, Risk Appetite and Asset Pricing

59 Pages Posted: 30 Nov 2017 Last revised: 17 Apr 2018

See all articles by Carlos Carvalho

Carlos Carvalho

Government of the Federative Republic of Brazil - Central Bank of Brazil; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Daniel Cordeiro

XP investimentos

Ruy Ribeiro

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Itaú Asset Management

Eduardo Zilberman

Central Bank of Chile - Economic Research

Date Written: March 1, 2018

Abstract

A measure of the propensity to gamble in casinos constructed without any asset price data provides relevant information for asset pricing. This measure of risk appetite improves the fit of conditional asset pricing models such as the conditional CAPM, explains cross-sectional differences in future returns for portfolios sorted on various characteristics, and helps forecast market and portfolio excess returns out of sample. The relationship between risk appetite and asset prices appears to be mainly explained by simultaneous changes in risk and risk premia.

Keywords: Asset Pricing, Cross-Section, Predictability, Factors, CAPM, Conditional Model, Gambling, Casino

JEL Classification: G12, G02

Suggested Citation

Carvalho, Carlos and Cordeiro, Daniel and Ribeiro, Ruy and Zilberman, Eduardo, Gambling, Risk Appetite and Asset Pricing (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=3077859 or http://dx.doi.org/10.2139/ssrn.3077859

Carlos Carvalho

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Daniel Cordeiro

XP investimentos ( email )

Av. Brigadeiro Faria Lima 3600, 10º andar
São Paulo, São Paulo 04538-132
Brazil

Ruy Ribeiro (Contact Author)

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Itaú Asset Management ( email )

São Paulo
Brazil

Eduardo Zilberman

Central Bank of Chile - Economic Research ( email )

United States

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