The Sharpe Ratio and Preferences : a Parametric Approach

  title={The Sharpe Ratio and Preferences : a Parametric Approach},
  author={Harald Uhlig},
We use a log-normal framework to examine the effect of preferences on the market price for risk, that is, the Sharpe ratio. In our framework, the Sharpe ratio can be calculated directly from the elasticity of the stochastic discount factor with respect to consumption innovations as well as the volatility of consumption innovations. This can be understood as an analytical shortcut to the calculation of the Hansen–Jagannathan volatility bounds, and therefore provides a convenient tool for… CONTINUE READING


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