This paper shows the success of valuation risk-time‐preference shocks in Epstein-Zin utility-in resolving asset pricing puzzles rests sensitively on the way it is introduced. The specification used in the literature is at odds with several desirable properties of recursive preferences because...

This paper deals with risk-free rate puzzle when the agent shows external habit formation, using different sorts of instruments that are used for proxies as a risk-free rate. It is found that upon instruments, risk free rate puzzle is vulnerable to the proxies selected; this fact ascribes to the...

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to fall. We show that these conditions neither imply,...