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Cited by 253

The DOI matches its Crossref record; 42 of the 42 references it cites were found in a registry or an index.

The 6D Bias and the Equity-Premium Puzzle

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Gabaix, Xavier, Laibson, David·2001·NBER Macroeconomics Annual
DOI 10.1086/654447
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Abstract

If decision costs lead agents to update consumption every D periods, then econometricians will find an anomalously low correlation between equity returns and consumption growth (Lynch, 1996). We analytically characterize the dynamic properties of an economy composed of consumers who have such delayed updating. In our setting, an econometrician using an Euler equation procedure would infer a coefficient of relative risk aversion biased up by a factor of 6D. Hence with quarterly data, if agents adjust their consumption every D=4 quarters, the imputed coefficient of relative risk aversion will be 24 times greater than the true value. High levels of risk aversion implied by the equity premium and violations of the Hansen-Jagannathan bounds cease to be puzzles. The neoclassical model with delayed adjustment explains the consumption behavior of shareholders. Once limited participation is taken into account, the model matches most properties of aggregate consumption and equity returns, including new evidence that the covariance between ln $(C_{t+h}/C_{t})$ and $R_{t+1}$ slowly rises with h.

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Metadata

Authors
Gabaix, X., & Laibson, D.
Venue
NBER Macroeconomics Annual
Publisher
University of Chicago Press
Published
2001-01
Volume
16
Pages
257-312
ISSN
  • 0889-3365 (ISSN-L)
  • 1537-2642
DOI
10.1086/654447
OpenAlex
W3121770567
Cited by
253
References
42
FWCI
15.85
Type
journal article
Language
en
Open access
green

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CoChat. (2026). Citation check: The 6D Bias and the Equity-Premium Puzzle. https://app.cochat.ai/papers/10.1086/654447
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Gabaix, X., & Laibson, D. (2001). The 6D Bias and the Equity-Premium Puzzle. NBER Macroeconomics Annual. https://doi.org/10.1086/654447

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