Year: 1986
Type: report
Abstract: A simple model of equity pricing is developed to address two related questions.First, to what extent can unanticipated changes in such "fundamental" variables as profitability, real interest rates, inflation, and the variance of returns account for the observed behavior of the stock market?Second, how risk averse are investors in the aggregate?We find that the pretax profit rate and the variance of returns are both significant explanators of the market, and interest rates somewhat less so.Estimates of the index of relative risk aversion are obtained that put that parameter in the range of 3 to 4.
DOI: 10.3386/w1921
Author: Robert Pindyck
Institution: Massachusetts Institute of Technology
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W2891973129