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Publication year
Risk Premia and Variance Bounds.
Resource type
Authors/contributors
- Balduzzi, Pierluigi (Author)
- Kallal, Hedi (Author)
Title
Risk Premia and Variance Bounds.
Abstract
If a pricing kernel assigns a premium to a risk variable that differs from the one assigned by the minimum-variance admissible kernel, then the pricing kernel must exhibit more variability than the minimum-variance kernel. Based on this intuition, the authors derive a variance bound that is more stringent than that of Lars Peter Hansen and Ravi Jagannathan (1991). When the authors apply their bound to the kernel of a representative consumer with power utility, they find that the consumption risk premium increases the severity of the 'equity-premium puzzle' of Rajnish Mehra and Edward C. Prescott (1985).
Publication
The Journal of Finance
Volume
52
Issue
5
Pages
1913-49
Date
1997-12
Citation
Balduzzi, P., & Kallal, H. (1997). Risk Premia and Variance Bounds. The Journal of Finance, 52, 1913–1949.
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