Open AccessPosted Content
A Long-Run Risks Explanation of Predictability Puzzles in Bond and Currency Markets
Ravi Bansal,Ivan Shaliastovich +1 more
TLDR
In this article, the authors develop and estimate a long-run risks model with time-varying volatilities of expected growth and inflation, which simultaneously accounts for bond return predictability and violations of uncovered interest parity in currency markets.Abstract:
We show that bond risk-premia rise with uncertainty about expected inflation and fall with uncertainty about expected growth; the magnitude of return predictability using these two uncertainty measures is similar to that by multiple yields. Motivated by this evidence, we develop and estimate a long-run risks model with time-varying volatilities of expected growth and inflation. The model simultaneously accounts for bond return predictability and violations of uncovered interest parity in currency markets. We find that preference for early resolution of uncertainty, time-varying volatilities, and non-neutral effects of inflation on growth are important to account for these aspects of asset markets.read more
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Stock Return Predictability and Variance Risk Premia : Statistical Inference and International Evidence
TL;DR: In this article, the authors show that the variance risk premium predicts aggregate stock market returns and demonstrate that statistical finite sample biases cannot explain the apparent predictability of stock market return in the U.S. They also show that country specific regressions for France, Germany, Japan, Switzerland, and U.K result in quite similar patterns.
ReportDOI
Predictability of Returns and Cash Flows
TL;DR: A review of the literature on return and cash-flow growth predictability from the perspective of the present value identity can be found in this paper, where the focus is on U.S. aggregate stock return predictability, but also discuss evidence from other asset classes and countries.
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The Effect of Manager-Specific Optimism on the Tone of Earnings Conference Calls
TL;DR: This article found that the tone of conference calls that is not explained by current performance, future performance, and strategic incentives has a significant manager-specific component, which is associated with early career experiences, and involvement in charitable organizations.
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The Share of Systematic Variation in Bilateral Exchange Rates
TL;DR: In this paper, a slope factor (long in high beta currencies and short in low beta currencies) accounts for this cross-section of currency risk premia, which is orthogonal to the high-minus-low carry trade factor built from portfolios of countries sorted by their interest rates.
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International risk cycles
TL;DR: In this article, a two-country real business cycle framework is used to calibrate the model to equity risk premia in low and high interest rates countries, and the model generates volatile exchange rates, a large currency forward premium, excess comovement of asset prices relative to quantities and an imperfect correlation between relative consumption growth and exchange rates.
References
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Journal ArticleDOI
THE EQUITY PREMIUM A Puzzle
Rajnish Mehra,Edward C. Prescott +1 more
TL;DR: This paper showed that an equilibrium model which is not an Arrow-Debreu economy will be the one that simultaneously rationalizes both historically observed large average equity return and the small average risk-free return.
Journal ArticleDOI
Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework
Larry G. Epstein,Stanley E. Zin +1 more
TL;DR: In this paper, a class of recursive, but not necessarily expected utility, preferences over intertemporal consumption lotteries is developed, which allows risk attitudes to be disentangled from the degree of inter-temporal substitutability, leading to a model of asset returns in which appropriate versions of both the atemporal CAPM and the inter-time consumption-CAPM are nested as special cases.
Posted Content
By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
TL;DR: In this paper, a consumption-based model is proposed to explain a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-term horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
Posted Content
Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Ravi Bansal,Amir Yaron +1 more
TL;DR: In this article, the authors show that news about growth rates significantly alter agent's perceptions regarding long run expected growth rates and growth rate uncertainty, which leads to a large equity risk premium, low risk free interest rate, and large market volatility.
Journal ArticleDOI
Forward and spot exchange rates
TL;DR: In this paper, the authors find that most of the variation in forward rates is variation in premium, and the premium and expected future spot rate components of forward rates are negatively correlated, and they conclude that the forward market is not efficient or rational.
Related Papers (5)
Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Ravi Bansal,Amir Yaron +1 more
Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework
Larry G. Epstein,Stanley E. Zin +1 more