This paper studies equilibrium portfolio choice and asset returns using a new model of recursive preferences called optimal risk attitude utility. Our model is an extension of recursive expected utility that allows an individual to optimally select her risk aversion parameter in response to the...

According to empirical studies, there is a systematic pattern in the temporal behavior of asset returns and this is related to the business cycle. We propose a simple model that captures this behavior. This model is built around a state dependent preference structure where the state dependency...

This paper studies equilibrium in a pure exchange economy with unobservable Markov switching consumption growth regimes and regime-dependent preferences. Variations in risk attitudes have fundamental effects on the structure of equilibrium. Explicit solutions are provided for the market price of...