The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models

Martin Møller Andreasen*, Kasper Jørgensen

*Corresponding author for this work

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A new utility kernel for Epstein-Zin-Weil preferences is proposed to disentangle the intertemporal elasticity of substitution (IES), the relative risk aversion (RRA), and the timing attitude. These new preferences resolve two puzzles in the long-run risk model, where consumption growth is too strongly correlated with the price-dividend ratio and the risk-free rate. The proposed preferences also enable a New Keynesian model to match equity and bond premia with a low RRA of 5. Importantly, the mechanism enabling Epstein-Zin-Weil preferences to explain asset prices in these models is not to separate the IES from RRA, but to introduce a strong timing attitude.

Original languageEnglish
JournalJournal of Monetary Economics
Pages (from-to)95-117
Publication statusPublished - May 2020


  • Bond premium puzzle
  • Early resolution of uncertainty
  • Equity premium puzzle
  • Long-run risk


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