The effect of time complementarity on consumption smoothing and the equity premium

Abstract

The effect of time complementarity is examined on the equity premium and consumption smoothing. Under time complementarity (or substitutability), the equity premium is smaller (or larger) and the growth rate in consumption is less (or more) volatile than under time additive preference. It is shown that a resolution of the consumption smoothing puzzle and the equity premium puzzle critically depends on the choice of the risk aversion measure.

Citation

Mo Ahn, C. and Kim, J. (2001), "The effect of time complementarity on consumption smoothing and the equity premium", Research in Finance (Research in Finance, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 153-168. https://doi.org/10.1016/S0196-3821(01)18006-8