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A Long-Run Risks Explanation of Predictability Puzzles in Bond and Currency Markets
Ravi Bansal,Ivan Shaliastovich +1 more
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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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Real Term Structure and New Keynesian Models
TL;DR: In this article, the authors investigate how well a standard New Keynesian model with simple modifications can match the nominal term structure of interest rates using TIPS data and find that it cannot match real yield curve features.
Regime Shifts in a Long-Run Risks Model of U.S. Stock and Treasury Bond Markets
TL;DR: In this paper, the joint determinants of stock and bond returns in Bansal and Yaron (2004) long-run risks model framework with regime shifts in consumption and in-time dynamics are studied.
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Learning and the Capital Age Premium
Kai Li,Chi-Yang Tsou,Chenjie Xu +2 more
TL;DR: In this article, the authors introduce imperfect information and parameter learning into a production-based asset pricing model, which features slow learning about firms' exposure to aggregate productivity shocks over time, and provide a unified explanation for the stylized empirical features of the cross-section of stocks that differ in capital age.
Essays on Financial Intermediation and Economic Linkages
TL;DR: In this paper, the authors studied the asset pricing properties that stem from the propagation of shocks within a network economy and the extent to which such a propagation mechanism quantitatively explains asset market phenomena.
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Dividend Multifactor Process, Long-run Risk and Payout Ratios
TL;DR: In this article, the authors examined the relationship between the multidimensionality of risk and dividend policy in an intertemporal context, and found that the long-run sensitivity of dividends to various economic factors is negatively related to N sensitive coefficients, given by the long run covariance between dividends and economic factors.
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.
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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.
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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.
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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.
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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.
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Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
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Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework
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