Working Paper: CEPR ID: DP16105
Authors: Laurent E. Calvet; John Y. Campbell; Francisco Gomes; Paolo Sodini
Abstract: This paper estimates the cross-sectional distribution of Epstein-Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find heterogeneous risk aversion (a standard deviation of 1.06 with a mean/median of 7.57/7.50), time preference rate (standard deviation 6.96% with a mean/median of 5.21/3.15%) and elasticity of intertemporal substitution (standard deviation 0.90 with a mean/median of 0.96/0.50). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households who enter our sample with low wealth.
Keywords: Indirect inference; Epstein-Zin preferences; Risk aversion; Lifecycle model; Elasticity of intertemporal substitution; Time preference rate
JEL Codes: D14; D91; G11; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income risk (G52) | risk aversion (D81) |
| TPR (F13) | risk aversion (D81) |
| risk aversion (D81) | EIS (F02) |
| TPR (F13) | EIS (F02) |