Long-Run Stockholder Consumption Risk and Asset Returns. Malloy, Moskowitz and Vissing-Jørgensen
|
|
- Berenice Fowler
- 6 years ago
- Views:
Transcription
1 Long-Run Stockholder Consumption Risk and Asset Returns Malloy, Moskowitz and Vissing-Jørgensen
2 Outline Introduction Equity premium puzzle Recent contribution Contribution of this paper Long-Run Risk Model Recursive utility function & Non iid consumption growth SDF and Euler equation Data Household-level consumption data Aggregation of the data Estimation Result Stockholder, Top stockholder, Nonstockholder Results with factor-mimicking portfolio Conclusion 1
3 INTRODUCTION 2
4 Motivation C-CAPM with CRRA utility function and iid (or short memory) consumption growth are unable to generate a high equity premium or low risk-free rate We need tremendously high risk aversion coefficient in order to explain the actual U.S. equity premium. Equity Premium Puzzle (Mehra and Prescott(1985)) 3
5 Motivation A number of solutions have been proposed, but still a puzzle. habit preference, rare disaster, transaction cost, liquidity GOAL Explain the cross-sectional variation of risk premium by consumption-based asset pricing model with plausible risk aversion coefficient. 4
6 Recent Contribution Long-Run Risk Model (Bansal and Yaron (2004) etc.) Recursive utility function with non iid consumption growth Asset returns are affected by the long-term future consumption risk. Limited Stock Market Participation Model (Vissing- Jørgensen (2002) etc.) Not all of the consumers take part in the capital markets. Stockholders bear a disproportionate amount of aggregate consumption risk relative to nonstockholders. 5
7 Contribution of this paper Malloy, Moskowitz and Vissing-Jørgensen (2009, henceforth MMV) intersects the recent literature on the long-run risk model and the limited stock market participation. MMV show that the long-run consumption risk of households who hold financial assets is particularly relevant for asset pricing. Their structural estimate of the risk aversion coefficient implied by the premium for stockholders is around 15, and for the wealthiest third of the stockholders is around 10. On the other hand, the implied risk aversion coefficient for nonstockholders is ranging from about 50 to 100 6
8 Long-Run Risk Model 7
9 Long-Run Risk Model Recursive Utility Function Non iid Consumption Growth Process Long-run component in consumption growth process 8
10 Why Recursive Utility Function? Problem of CRRA Utility Function Risk aversion EIS RRA= EIS= We need high RRA in order to explain actual equity premium EIS becomes low Risk-free rate becomes very high Risk-free rate puzzle by Weil (1989) 9
11 Recursive Utility Function Let Certainty equivalence of future utility Recursive utility function is CES utility function with C t and CE t RRA= EIS= MMV mainly focus on the case where the EIS=1 The empirical results when EIS 1 are similar to EIS=1 10
12 Non iid Consumption Growth Process The growth of consumption follows MA( ), NOT iid Empirical support for the long-run component of consumption growth, for example, Colacito and Croce (2008), Hansen, Heaton and Li (2008) Literatures on the Long-run risk model often use stochastic volatility in consumption process, but MMV don t. 11
13 SDF and Euler Equation Stochastic Discount Factor Euler Equation Unexpected innovation about the discounted value of future consumption growth Unconditional Covariances Covariances of Conditional Expectations 12
14 SDF and Euler Equation Problem: Estimating conditional expectations is difficult task with the household-level consumption data since it spans only 23 years If Expected excess returns are constant over time The covariance between is identical across the set of test assets and We can ignore the second term of the right hand side or regard it as constant MMV mainly use unconditional covariances only and use conditional covariances for robustness check 13
15 DATA 14
16 Data Consumption Data Household-level consumption data from Consumer Expenditure Survey (CEX) for the period March November MMV make three groups from CEX, 1. stockholders, 2. wealthiest third of stockholders (top stockholders), 3. nonstockholders Aggregate per capita nondurable and service consumption growth rates from NIPA from June 1959 to November Asset Returns Data The returns of the 25 size and book-to-market equity sorted portfolios of Fama and French from July 1926 to November The returns on eight Treasury bond portfolios with average maturities of 3 months, 1, 2, 5, 7, 10, 20 and 30 years, obtained from CRSP for the period March November
17 Aggregation of Household Consumption The average growth rate from t to t+1 for a group g (e.g., stockholders) The number of households in group g in quarter t The quarterly log consumption of household h in group g for quarter t The Euler equation becomes following cross-sectional regression Estimate and via GMM (assume =0.95 1/4 ) with S=1,2,4,8,12,16,20,
18 ESTIMATION RESULTS 17
19 Regression Result stockholder 18
20 Regression Result top stockholder 19
21 Regression Result nonstockholder 20
22 Graphical interpretation 21
23 Factor-Mimicking Portfolios Measuring long-run risks with CEX data is challenging since the sample size of CEX is small. Construct factor-mimicking portfolios that allow a longer time series of data. The consumption growth factor portfolio, CGF, is created by estimating the following regression. Estimate the cross sectional regression with CGF, instead of 22
24 Regression Result with CGF 23
25 Robustness check with other assets MMV use three other assets instead of 25 Fama-French portfolios for robustness check. 1. CRSP value-weighted index 2. Bond portfolios 3. Individual stocks 24
26 Regression result for other assets 25
27 Graphical Interpretation-bond portfolio 26
28 Conclusion Long-run stockholder consumption risk captures the return premia associated with size and value portfolios, the aggregate stock market, bond portfolios, and the entire cross-section of stocks with a moderate risk aversion coefficient of about 10 for the wealthiest stockholders. There are still open questions How do these long-run patterns emerge as an equilibrium outcome? Why stockholders take on more of the aggregate consumption risk? These research will improve our knowledge of what is driving these long-run relationship. 27
OULU BUSINESS SCHOOL. Byamungu Mjella CONDITIONAL CHARACTERISTICS OF RISK-RETURN TRADE-OFF: A STOCHASTIC DISCOUNT FACTOR FRAMEWORK
OULU BUSINESS SCHOOL Byamungu Mjella CONDITIONAL CHARACTERISTICS OF RISK-RETURN TRADE-OFF: A STOCHASTIC DISCOUNT FACTOR FRAMEWORK Master s Thesis Department of Finance November 2017 Unit Department of
More informationCREATES Research Paper Global Asset Pricing: Is There a Role for Long-run Consumption Risk?
CREATES Research Paper 2009-57 Global Asset Pricing: Is There a Role for Long-run Consumption Risk? Jesper Rangvid, Maik Schmeling and Andreas Schrimpf School of Economics and Management Aarhus University
More informationAn Estimation of Economic Models with Recursive Preferences. Xiaohong Chen Jack Favilukis Sydney C. Ludvigson DISCUSSION PAPER NO 603
ISSN 0956-8549-603 An Estimation of Economic Models with Recursive Preferences By Xiaohong Chen Jack Favilukis Sydney C. Ludvigson DISCUSSION PAPER NO 603 DISCUSSION PAPER SERIES November 2007 Xiaohong
More informationLong-run Consumption Risks in Assets Returns: Evidence from Economic Divisions
Long-run Consumption Risks in Assets Returns: Evidence from Economic Divisions Abdulrahman Alharbi 1 Abdullah Noman 2 Abstract: Bansal et al (2009) paper focus on measuring risk in consumption especially
More informationLimited Asset Market Participation and the Elasticity of Intertemporal Substitution
Limited Asset Market Participation and the Elasticity of Intertemporal Substitution Annette Vissing-Jørgensen University of Chicago, National Bureau of Economic Research, and Centre for Economic Policy
More informationThe Consumption of Active Investors and Asset Prices
The Consumption of Active Investors and Asset Prices Department of Economics Princeton University azawadow@princeton.edu June 6, 2009 Motivation does consumption asset pricing work with unconstrained active
More informationLong Run Risks and Financial Markets
Long Run Risks and Financial Markets Ravi Bansal December 2006 Bansal (email: ravi.bansal@duke.edu) is affiliated with the Fuqua School of Business, Duke University, Durham, NC 27708. I thank Dana Kiku,
More informationFrom the perspective of theoretical
Long-Run Risks and Financial Markets Ravi Bansal The recently developed long-run risks asset pricing model shows that concerns about long-run expected growth and time-varying uncertainty (i.e., volatility)
More informationNBER WORKING PAPER SERIES ASSET PRICING WITH HETEROGENEOUS CONSUMERS AND LIMITED PARTICIPATION: EMPIRICAL EVIDENCE
NBER WORKING PAPER SERIES ASSET PRICING WITH HETEROGENEOUS CONSUMERS AND LIMITED PARTICIPATION: EMPIRICAL EVIDENCE Alon Brav George M. Constantinides Christopher C. Geczy Working Paper 8822 http://www.nber.org/papers/w8822
More informationAsset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence
Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence Alon Brav Duke University George M. Constantinides University of Chicago and National Bureau of Economic Research
More informationDoes High-Order Consumption Risk Matter? Evidence from the Consumer Expenditure Survey (CEX)
Does High-Order Consumption Risk Matter? Evidence from the Consumer Expenditure Survey (CEX) Marco Rossi May 31, 2007 Abstract High order moments of consumption growth cannot adequately explain the equity
More informationBasics of Asset Pricing. Ali Nejadmalayeri
Basics of Asset Pricing Ali Nejadmalayeri January 2009 No-Arbitrage and Equilibrium Pricing in Complete Markets: Imagine a finite state space with s {1,..., S} where there exist n traded assets with a
More informationNBER WORKING PAPER SERIES LIMITED ASSET MARKET PARTICIPATION AND THE ELASTICITY OF INTERTEMPORAL SUBSTITUTION. Annette Vissing-Jorgensen
NBER WORKING PAPER SERIES LIMITED ASSET MARKET PARTICIPATION AND THE ELASTICITY OF INTERTEMPORAL SUBSTITUTION Annette Vissing-Jorgensen Working Paper 8896 http://www.nber.org/papers/w8896 NATIONAL BUREAU
More informationAn estimation of economic models with recursive preferences
An estimation of economic models with recursive preferences Xiaohong Chen Jack Favilukis Sydney C. Ludvigson The Institute for Fiscal Studies Department of Economics, UCL cemmap working paper CWP32/12
More informationCan Rare Events Explain the Equity Premium Puzzle?
Can Rare Events Explain the Equity Premium Puzzle? Christian Julliard and Anisha Ghosh Working Paper 2008 P t d b J L i f NYU A t P i i Presented by Jason Levine for NYU Asset Pricing Seminar, Fall 2009
More informationAsset Pricing with Heterogeneous Consumers
, JPE 1996 Presented by: Rustom Irani, NYU Stern November 16, 2009 Outline Introduction 1 Introduction Motivation Contribution 2 Assumptions Equilibrium 3 Mechanism Empirical Implications of Idiosyncratic
More informationSlides 3: Macronance - Asset Pricing
Slides 3: Macronance - Asset Pricing Bianca De Paoli November 2009 1 Asset pricing: We have bonds, equities and capital in the model above, so have a candidate asset pricing model 1 = E t 8 >< >: t+1 t
More informationDoes inflation explain equity risk premia?
Does inflation explain equity risk premia? Paulo Maio November 2017 Abstract I derive a simple linear macro asset pricing model that contains inflation as a risk factor in addition to the standard consumption
More informationToward A Term Structure of Macroeconomic Risk
Toward A Term Structure of Macroeconomic Risk Pricing Unexpected Growth Fluctuations Lars Peter Hansen 1 2007 Nemmers Lecture, Northwestern University 1 Based in part joint work with John Heaton, Nan Li,
More informationInterpreting Risk Premia Across Size, Value, and Industry Portfolios
Interpreting Risk Premia Across Size, Value, and Industry Portfolios Ravi Bansal Fuqua School of Business, Duke University Robert F. Dittmar Kelley School of Business, Indiana University Christian T. Lundblad
More informationMean Reversion in Asset Returns and Time Non-Separable Preferences
Mean Reversion in Asset Returns and Time Non-Separable Preferences Petr Zemčík CERGE-EI April 2005 1 Mean Reversion Equity returns display negative serial correlation at horizons longer than one year.
More informationInterest rate risk and the cross-section of stock returns
Interest rate risk and the cross-section of stock returns Paulo Maio 1 First draft: November 2009 This draft: December 2010 1 Durham Business School. Corresponding address: Durham Business School, Durham
More informationShort-run and Long-run Consumption Risks, Dividend Processes and Asset Returns
Short-run and Long-run Consumption Risks, Dividend Processes and Asset Returns Jun Li and Harold H. Zhang December 2, 2014 Abstract We examine the implications of short- and long-run consumption growth
More informationStock-Market Participation, Intertemporal Substitution, and Risk-Aversion
Stock-Market Participation, Intertemporal Substitution, and Risk-Aversion Annette Vissing-Jørgensen; Orazio P. Attanasio The American Economic Review, Vol. 93, No. 2, Papers and Proceedings of the One
More informationPrice of Long-Run Temperature Shifts in Capital Markets
Price of Long-Run Temperature Shifts in Capital Markets Ravi Bansal, Dana Kiku and Marcelo Ochoa December 17, 2017 Abstract We use the forward-looking information in capital markets to measure the economic
More informationTopic 7: Asset Pricing and the Macroeconomy
Topic 7: Asset Pricing and the Macroeconomy Yulei Luo SEF of HKU November 15, 2013 Luo, Y. (SEF of HKU) Macro Theory November 15, 2013 1 / 56 Consumption-based Asset Pricing Even if we cannot easily solve
More informationApplied Macro Finance
Master in Money and Finance Goethe University Frankfurt Week 8: From factor models to asset pricing Fall 2012/2013 Please note the disclaimer on the last page Announcements Solution to exercise 1 of problem
More informationInternational Asset Pricing and Risk Sharing with Recursive Preferences
p. 1/3 International Asset Pricing and Risk Sharing with Recursive Preferences Riccardo Colacito Prepared for Tom Sargent s PhD class (Part 1) Roadmap p. 2/3 Today International asset pricing (exchange
More informationBirkbeck MSc/Phd Economics. Advanced Macroeconomics, Spring Lecture 2: The Consumption CAPM and the Equity Premium Puzzle
Birkbeck MSc/Phd Economics Advanced Macroeconomics, Spring 2006 Lecture 2: The Consumption CAPM and the Equity Premium Puzzle 1 Overview This lecture derives the consumption-based capital asset pricing
More informationOne-Factor Asset Pricing
One-Factor Asset Pricing with Stefanos Delikouras (University of Miami) Alex Kostakis Manchester June 2017, WFA (Whistler) Alex Kostakis (Manchester) One-Factor Asset Pricing June 2017, WFA (Whistler)
More informationEmpirical Evidence. r Mt r ft e i. now do second-pass regression (cross-sectional with N 100): r i r f γ 0 γ 1 b i u i
Empirical Evidence (Text reference: Chapter 10) Tests of single factor CAPM/APT Roll s critique Tests of multifactor CAPM/APT The debate over anomalies Time varying volatility The equity premium puzzle
More informationNBER WORKING PAPER SERIES THE LONG-RUN RISKS MODEL AND AGGREGATE ASSET PRICES: AN EMPIRICAL ASSESSMENT. Jason Beeler John Y.
NBER WORKING PAPER SERIES THE LONG-RUN RISKS MODEL AND AGGREGATE ASSET PRICES: AN EMPIRICAL ASSESSMENT Jason Beeler John Y. Campbell Working Paper 14788 http://www.nber.org/papers/w14788 NATIONAL BUREAU
More informationMacroeconomics Sequence, Block I. Introduction to Consumption Asset Pricing
Macroeconomics Sequence, Block I Introduction to Consumption Asset Pricing Nicola Pavoni October 21, 2016 The Lucas Tree Model This is a general equilibrium model where instead of deriving properties of
More informationPer Capita Consumption, Luxury Consumption and the. Presidential Puzzle: A Partial Resolution 1
Per Capita Consumption, Luxury Consumption and the Presidential Puzzle: A Partial Resolution 1 Sean D. Campbell Department of Economics Brown University Canlin Li A.G. Anderson School of Management University
More informationMacroeconomics I Chapter 3. Consumption
Toulouse School of Economics Notes written by Ernesto Pasten (epasten@cict.fr) Slightly re-edited by Frank Portier (fportier@cict.fr) M-TSE. Macro I. 200-20. Chapter 3: Consumption Macroeconomics I Chapter
More informationInterpreting Risk Premia Across Size, Value, and Industry Portfolios
Interpreting Risk Premia Across Size, Value, and Industry Portfolios Ravi Bansal Fuqua School of Business, Duke University Robert F. Dittmar Kelley School of Business, Indiana University Christian T. Lundblad
More informationRisks For the Long Run: A Potential Resolution of Asset Pricing Puzzles
Risks For the Long Run: A Potential Resolution of Asset Pricing Puzzles Ravi Bansal and Amir Yaron ABSTRACT We model consumption and dividend growth rates as containing (i) a small long-run predictable
More informationDifferential Interpretation of Public Signals and Trade in Speculative Markets. Kandel & Pearson, JPE, 1995
Differential Interpretation of Public Signals and Trade in Speculative Markets Kandel & Pearson, JPE, 1995 Presented by Shunlan Fang May, 14 th, 2008 Roadmap Why differential opinions matter to asset pricing
More informationThe Robustness of the Conditional CAPM with Human Capital
The Robustness of the Conditional CAPM with Human Capital IGNACIO PALACIOS-HUERTA Brown University Abstract An empirical evaluation is provided of the robustness of the conditional capital asset pricing
More informationThe Wealth-Consumption Ratio
The Wealth-Consumption Ratio Hanno Lustig Stijn Van Nieuwerburgh Adrien Verdelhan Abstract To measure the wealth-consumption ratio, we estimate an exponentially affine model of the stochastic discount
More informationLong-Run Productivity Risk: A New Hope for Production-Based Asset Pricing
Long-Run Productivity Risk: A New Hope for Production-Based Asset Pricing Mariano Massimiliano Croce Abstract This study examines the intertemporal distribution of productivity risk. Focusing on post-war
More informationWhat Do International Asset Returns Imply About Consumption Risk-Sharing?
What Do International Asset Returns Imply About Consumption Risk-Sharing? (Preliminary and Incomplete) KAREN K. LEWIS EDITH X. LIU June 10, 2009 Abstract An extensive literature has examined the potential
More informationAsset pricing in the frequency domain: theory and empirics
Asset pricing in the frequency domain: theory and empirics Ian Dew-Becker and Stefano Giglio Duke Fuqua and Chicago Booth 11/27/13 Dew-Becker and Giglio (Duke and Chicago) Frequency-domain asset pricing
More informationAsset Pricing and Portfolio. Choice Theory SECOND EDITION. Kerry E. Back
Asset Pricing and Portfolio Choice Theory SECOND EDITION Kerry E. Back Preface to the First Edition xv Preface to the Second Edition xvi Asset Pricing and Portfolio Puzzles xvii PART ONE Single-Period
More informationAn Empirical Evaluation of the Long-Run Risks Model for Asset Prices
An Empirical Evaluation of the Long-Run Risks Model for Asset Prices Ravi Bansal Dana Kiku Amir Yaron November 11, 2011 Abstract We provide an empirical evaluation of the Long-Run Risks (LRR) model, and
More informationNBER WORKING PAPER SERIES ADVANCES IN CONSUMPTION-BASED ASSET PRICING: EMPIRICAL TESTS. Sydney C. Ludvigson
NBER WORKING PAPER SERIES ADVANCES IN CONSUMPTION-BASED ASSET PRICING: EMPIRICAL TESTS Sydney C. Ludvigson Working Paper 16810 http://www.nber.org/papers/w16810 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050
More informationCONSUMPTION-BASED MACROECONOMIC MODELS OF ASSET PRICING THEORY
ECONOMIC ANNALS, Volume LXI, No. 211 / October December 2016 UDC: 3.33 ISSN: 0013-3264 DOI:10.2298/EKA1611007D Marija Đorđević* CONSUMPTION-BASED MACROECONOMIC MODELS OF ASSET PRICING THEORY ABSTRACT:
More informationIs the Value Premium a Puzzle?
Is the Value Premium a Puzzle? Job Market Paper Dana Kiku Current Draft: January 17, 2006 Abstract This paper provides an economic explanation of the value premium puzzle, differences in price/dividend
More informationConsumption, Dividends, and the Cross-Section of Equity Returns
Consumption, Dividends, and the Cross-Section of Equity Returns Ravi Bansal, Robert F. Dittmar, and Christian T. Lundblad First Draft: July 2001 This Draft: June 2002 Bansal (email: ravi.bansal@duke.edu)
More informationA Simple Consumption-Based Asset Pricing Model and the Cross-Section of Equity Returns
A Simple Consumption-Based Asset Pricing Model and the Cross-Section of Equity Returns Robert F. Dittmar Christian Lundblad This Draft: January 8, 2014 Abstract We investigate the empirical performance
More informationConsumption and Portfolio Choice under Uncertainty
Chapter 8 Consumption and Portfolio Choice under Uncertainty In this chapter we examine dynamic models of consumer choice under uncertainty. We continue, as in the Ramsey model, to take the decision of
More informationOne-Factor Asset Pricing
One-Factor Asset Pricing with Stefanos Delikouras (University of Miami) Alex Kostakis MBS 12 January 217, WBS Alex Kostakis (MBS) One-Factor Asset Pricing 12 January 217, WBS 1 / 32 Presentation Outline
More informationLong Run Labor Income Risk
Long Run Labor Income Risk Robert F. Dittmar Francisco Palomino November 00 Department of Finance, Stephen Ross School of Business, University of Michigan, Ann Arbor, MI 4809, email: rdittmar@umich.edu
More informationInvestor Information, Long-Run Risk, and the Duration of Risky Cash Flows
Investor Information, Long-Run Risk, and the Duration of Risky Cash Flows Mariano M. Croce NYU Martin Lettau y NYU, CEPR and NBER Sydney C. Ludvigson z NYU and NBER Comments Welcome First draft: August
More informationConsumption-Savings Decisions and State Pricing
Consumption-Savings Decisions and State Pricing Consumption-Savings, State Pricing 1/ 40 Introduction We now consider a consumption-savings decision along with the previous portfolio choice decision. These
More informationEuler Equation Errors
Euler Equation Errors Martin Lettau New York University, CEPR, NBER Sydney C. Ludvigson New York University and NBER PRELIMINARY Comments Welcome First draft: September 1, 2004 This draft: February 22,
More informationNBER WORKING PAPER SERIES RARE EVENTS AND LONG-RUN RISKS. Robert J. Barro Tao Jin. Working Paper
NBER WORKING PAPER SERIES RARE EVENTS AND LONG-RUN RISKS Robert J. Barro Tao Jin Working Paper 21871 http://www.nber.org/papers/w21871 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge,
More informationThe Bond Premium in a DSGE Model with Long-Run Real and Nominal Risks
The Bond Premium in a DSGE Model with Long-Run Real and Nominal Risks Glenn D. Rudebusch Eric T. Swanson Economic Research Federal Reserve Bank of San Francisco Conference on Monetary Policy and Financial
More informationLeads, Lags, and Logs: Asset Prices in Business Cycle Analysis
Leads, Lags, and Logs: Asset Prices in Business Cycle Analysis David Backus (NYU), Bryan Routledge (CMU), and Stanley Zin (CMU) NYU Macro Lunch December 7, 2006 This version: December 7, 2006 Backus, Routledge,
More informationProblem set 1 Answers: 0 ( )= [ 0 ( +1 )] = [ ( +1 )]
Problem set 1 Answers: 1. (a) The first order conditions are with 1+ 1so 0 ( ) [ 0 ( +1 )] [( +1 )] ( +1 ) Consumption follows a random walk. This is approximately true in many nonlinear models. Now we
More informationLeads, Lags, and Logs: Asset Prices in Business Cycle Analysis
Leads, Lags, and Logs: Asset Prices in Business Cycle Analysis David Backus (NYU), Bryan Routledge (CMU), and Stanley Zin (CMU) Society for Economic Dynamics, July 2006 This version: July 11, 2006 Backus,
More informationImproving the asset pricing ability of the Consumption-Capital Asset Pricing Model?
Improving the asset pricing ability of the Consumption-Capital Asset Pricing Model? Anne-Sofie Reng Rasmussen Keywords: C-CAPM, intertemporal asset pricing, conditional asset pricing, pricing errors. Preliminary.
More informationLars Peter Hansen, John C. Heaton, and Nan Li
4 Intangible Risk Lars Peter Hansen, John C. Heaton, and Nan Li 4.1 Introduction Accounting for the asset values by measured physical capital and other inputs arguably omits intangible sources of capital.
More informationLiquidity Premium and Consumption
Liquidity Premium and Consumption January 2011 Abstract This paper studies the relationship between the liquidity premium and risk exposure to the shocks that influence consumption in the long run. We
More informationLimited Stock Market Participation and Asset Prices in a Dynamic Economy
WORKING PAPER SERIES Limited Stock Market Participation and Asset Prices in a Dynamic Economy Hui Guo Working Paper 2000-031C http://research.stlouisfed.org/wp/2000/2000-031.pdf November 2000 Revised August
More informationA Habit-Based Explanation of the Exchange Rate Risk Premium
A Habit-Based Explanation of the Exchange Rate Risk Premium Adrien Verdelhan February 2006 ABSTRACT This paper presents a fully rational general equilibrium model that produces a time-varying exchange
More informationProblem set 5. Asset pricing. Markus Roth. Chair for Macroeconomics Johannes Gutenberg Universität Mainz. Juli 5, 2010
Problem set 5 Asset pricing Markus Roth Chair for Macroeconomics Johannes Gutenberg Universität Mainz Juli 5, 200 Markus Roth (Macroeconomics 2) Problem set 5 Juli 5, 200 / 40 Contents Problem 5 of problem
More informationThe Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment
The Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters.
More informationThe Cross-Section and Time-Series of Stock and Bond Returns
The Cross-Section and Time-Series of Ralph S.J. Koijen, Hanno Lustig, and Stijn Van Nieuwerburgh University of Chicago, UCLA & NBER, and NYU, NBER & CEPR UC Berkeley, September 10, 2009 Unified Stochastic
More informationTries to understand the prices or values of claims to uncertain payments.
Asset pricing Tries to understand the prices or values of claims to uncertain payments. If stocks have an average real return of about 8%, then 2% may be due to interest rates and the remaining 6% is a
More informationValuation Risk and Asset Pricing
Valuation Risk and Asset Pricing Rui Albuquerque,MartinEichenbaum,andSergioRebelo December 2012 Abstract Standard representative-agent models have di culty in accounting for the weak correlation between
More informationExpected Stock Returns and Earnings Volatility
Expected Stock Returns and Earnings Volatility Alan Guoming Huang December 15, 2004 Preliminary. Comments welcome. Department of Finance, Leeds School of Business, University of Colorado, Boulder, CO 80309,
More informationEvidence for state and time non-separable preferences: The case of Finland
Evidence for state and time non-separable preferences: The case of Finland Abstract Preferential modifications to the standard state and time separable power utility are studied for the Finnish equity
More informationTitle: MACROECONOMIC DETERMINANTS OF STOCK MARKET BETAS Author(/s): Mariano González, Juan Nave and Gonzalo Rubio Date: November-2016
Title: MACROECONOMIC DETERMINANTS OF STOCK MARKET BETAS Author(/s): Mariano González, Juan Nave and Gonzalo Rubio Date: November-2016 WORKING PAPER SERIES: 5/2016 CÁTEDRA CEU-MM Madrid (Spain) ISSN online:
More informationThe Financial Review The Epstein Zin Model with Liquidity Extension For Review Only
The Financial Review The Epstein Zin Model with Liquidity Extension Journal: The Financial Review Manuscript ID FIRE---.R Manuscript Type: Paper Submitted for Review Keywords: Liquidity risk, Consumption-based
More informationLecture 11. Fixing the C-CAPM
Lecture 11 Dynamic Asset Pricing Models - II Fixing the C-CAPM The risk-premium puzzle is a big drag on structural models, like the C- CAPM, which are loved by economists. A lot of efforts to salvage them:
More informationRisks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
THE JOURNAL OF FINANCE VOL. LIX, NO. 4 AUGUST 004 Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles RAVI BANSAL and AMIR YARON ABSTRACT We model consumption and dividend growth rates
More informationNBER WORKING PAPER SERIES CONSUMPTION RISK AND EXPECTED STOCK RETURNS. Jonathan A. Parker. Working Paper
NBER WORKING PAPER SERIES CONSUMPTION RISK AND EXPECTED STOCK RETURNS Jonathan A. Parker Working Paper 9548 http://www.nber.org/papers/w9548 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue
More informationA Note on the Economics and Statistics of Predictability: A Long Run Risks Perspective
A Note on the Economics and Statistics of Predictability: A Long Run Risks Perspective Ravi Bansal Dana Kiku Amir Yaron November 14, 2007 Abstract Asset return and cash flow predictability is of considerable
More information1 Asset Pricing: Bonds vs Stocks
Asset Pricing: Bonds vs Stocks The historical data on financial asset returns show that one dollar invested in the Dow- Jones yields 6 times more than one dollar invested in U.S. Treasury bonds. The return
More informationEIEF/LUISS, Graduate Program. Asset Pricing
EIEF/LUISS, Graduate Program Asset Pricing Nicola Borri 2017 2018 1 Presentation 1.1 Course Description The topics and approach of this class combine macroeconomics and finance, with an emphasis on developing
More informationRare Events and Long-Run Risks *
Rare Events and Long-Run Risks * Robert J. Barro and Tao Jin Harvard University and Tsinghua University Abstract Rare events (RE) and long-run risks (LRR) are complementary approaches for characterizing
More informationThe Share of Systematic Variation in Bilateral Exchange Rates
The Share of Systematic Variation in Bilateral Exchange Rates Adrien Verdelhan MIT Sloan and NBER March 2013 This Paper (I/II) Two variables account for 20% to 90% of the monthly exchange rate movements
More informationSwitching Regression Estimates of EIS for Stockholders and Non-Stockholders
Florida International University FIU Digital Commons Economics Research Working Paper Series Department of Economics 9-3-2009 Switching Regression Estimates of EIS for Stockholders and Non-Stockholders
More informationIntroduction to Asset Pricing: Overview, Motivation, Structure
Introduction to Asset Pricing: Overview, Motivation, Structure Lecture Notes Part H Zimmermann 1a Prof. Dr. Heinz Zimmermann Universität Basel WWZ Advanced Asset Pricing Spring 2016 2 Asset Pricing: Valuation
More informationUnderstanding Volatility Risk
Understanding Volatility Risk John Y. Campbell Harvard University ICPM-CRR Discussion Forum June 7, 2016 John Y. Campbell (Harvard University) Understanding Volatility Risk ICPM-CRR 2016 1 / 24 Motivation
More informationConsumption, Dividends, and the Cross Section of Equity Returns
THE JOURNAL OF FINANCE VOL. LX, NO. 4 AUGUST 2005 Consumption, Dividends, and the Cross Section of Equity Returns RAVI BANSAL, ROBERT F. DITTMAR, and CHRISTIAN T. LUNDBLAD ABSTRACT We show that aggregate
More informationLong-Run Risk through Consumption Smoothing
Long-Run Risk through Consumption Smoothing Georg Kaltenbrunner and Lars Lochstoer y;z First draft: 31 May 2006 December 15, 2006 Abstract We show that a standard production economy model where consumers
More informationModern Dynamic Asset Pricing Models
Modern Dynamic Asset Pricing Models Lecture Notes 3. Habits, Long Run Risk and Cross-sectional Predictability Pietro Veronesi Graduate School of Business, University of Chicago CEPR, NBER Pietro Veronesi
More informationApplying the Basic Model
2 Applying the Basic Model 2.1 Assumptions and Applicability Writing p = E(mx), wedonot assume 1. Markets are complete, or there is a representative investor 2. Asset returns or payoffs are normally distributed
More informationRisk Premia and the Conditional Tails of Stock Returns
Risk Premia and the Conditional Tails of Stock Returns Bryan Kelly NYU Stern and Chicago Booth Outline Introduction An Economic Framework Econometric Methodology Empirical Findings Conclusions Tail Risk
More informationAmerican University of Beirut Institute of Financial Economics. Salwa M. Hammami
American University of Beirut Institute of Financial Economics Salwa M. Hammami American University of Beirut Institute of Financial Economics Lecture and Working Paper Series No. 2, 2007 Horse Race of
More informationOne-Factor Asset Pricing 1
One-Factor Asset Pricing 1 Stefanos Delikouras 2 Alexandros Kostakis 3 This draft: October 3, 216 First draft: September 1, 215 1 This paper has benefited from the comments of Massimiliano Affinito, Michael
More informationWelfare Costs of Long-Run Temperature Shifts
Welfare Costs of Long-Run Temperature Shifts Ravi Bansal Fuqua School of Business Duke University & NBER Durham, NC 27708 Marcelo Ochoa Department of Economics Duke University Durham, NC 27708 October
More informationLong-Run Risk through Consumption Smoothing
Long-Run Risk through Consumption Smoothing Georg Kaltenbrunner and Lars Lochstoer yz First draft: 31 May 2006. COMMENTS WELCOME! October 2, 2006 Abstract Whenever agents have access to a production technology
More informationOn the economic significance of stock return predictability: Evidence from macroeconomic state variables
On the economic significance of stock return predictability: Evidence from macroeconomic state variables Huacheng Zhang * University of Arizona This draft: 8/31/2012 First draft: 2/28/2012 Abstract We
More informationStock and Bond Returns with Moody Investors
Stock and Bond Returns with Moody Investors Geert Bekaert Columbia University and NBER Eric Engstrom Federal Reserve Board of Governors Steven R. Grenadier Stanford University and NBER This Draft: March
More informationA Consumption CAPM with a Reference Level
A Consumption CAPM with a Reference Level René Garcia CIREQ, CIRANO and Université de Montréal Éric Renault CIREQ, CIRANO and University of North Carolina at Chapel Hill Andrei Semenov York University
More informationTHE CROSS-SECTION OF FOREIGN CURRENCY RISK PREMIA AND CONSUMPTION GROWTH RISK
USC FBE MACROECONOMICS AND INTERNATIONAL FINANCE WORKSHOP presented by Hanno Lustig FRIDAY, Sept. 9, 5 3:3 pm 5: pm, Room: HOH-61K THE CROSS-SECTION OF FOREIGN CURRENCY RISK PREMIA AND CONSUMPTION GROWTH
More informationAggregate Implications of Micro Asset Market Segmentation
Aggregate Implications of Micro Asset Market Segmentation Chris Edmond Pierre-Olivier Weill First draft: March 29. This draft: April 29 Abstract This paper develops a consumption-based asset pricing model
More information