1990_First-order risk aversion and the equity premium puzzle_Larry G.Epstein and Stanley E. Zin.pdfVIP

Journal of Monetary Economics 26 (1990) 387-407. North-Holland ‘First-order’ risk aversion and the equity premium puzzle* Larry G. Epstein Unwerslty of Toronto, Toronto, Ont. M5S IAI, Canada Stanley E. Zin Carnep Mellon Umlws~ty. Ptttshurgh, PA 15213, USA Recerved September 1989, final versron received June 1990 This paper Integrates Yaari’s dual theory of choice under uncertamty into a multiperiod context and examines its imphcations for the equity premium puzzle. An Important property of these preferences IS that of ‘tirst-order risk aversion’ which implies. in our model. that the