Risk aversion heterogeneity and the investment-uncertainty relationship

Gianluca Femminis*

*Autore corrispondente per questo lavoro

Risultato della ricerca: Contributo in rivistaArticolopeer review

Abstract

We develop a dynamic macroeconomic model encompassing heterogeneity in households' attitudes towards risk, and we allow agents to share aggregate volatility by trading safe assets. In equilibrium, when volatility increases, low-risk-averse households, who hold a long position in risky assets, perceive a higher certainty-equivalent future return on capital. The perceived yield may also increase for high-risk-averse agents, who hold riskless assets. In response to a rise in certainty-equivalent expected returns, savings decrease due to a limited willingness to substitute consumption over time. This generates a negative response of aggregate investment to an increase in systematic volatility, showing that the aggregate behavior of an heterogeneous agents economy can be different from the behavior originating from an `average' representative agent. The appearance of degenerate wealth distributions is avoided by allowing the risk aversion of each household to change stochastically over time.
Lingua originaleInglese
pagine (da-a)223-264
Numero di pagine42
RivistaJOURNAL OF ECONOMICS
Volume2019
Numero di pubblicazione127
DOI
Stato di pubblicazionePubblicato - 2019

All Science Journal Classification (ASJC) codes

  • Business, Management e Contabilità Generali
  • Economia ed Econometria

Keywords

  • Aggregate investment
  • heterogeneity
  • risk aversion
  • volatility

Fingerprint

Entra nei temi di ricerca di 'Risk aversion heterogeneity and the investment-uncertainty relationship'. Insieme formano una fingerprint unica.

Cita questo