Open AccessPosted Content
A Long-Run Risks Explanation of Predictability Puzzles in Bond and Currency Markets
Ravi Bansal,Ivan Shaliastovich +1 more
Reads0
Chats0
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
Citations
More filters
Journal ArticleDOI
International Correlation Risk
TL;DR: In this paper, a no-arbitrage model was proposed to jointly match the empirical properties of FX correlations and correlation risk premiums, and the model showed that U.S. investors require an FX risk premium for being exposed to states in which the cross-section of FX correlation widens.
Journal ArticleDOI
Long Run Risk and the Persistence of Consumption Shocks
TL;DR: In this article, the authors propose a methodology based on multiresolution analysis to decompose a time series in components classifi ed by their level of persistence, using this decomposition to detect the layers with diff erent degrees of persistence in consumption growth.
ReportDOI
Monetary Policy and the Uncovered Interest Rate Parity Puzzle
TL;DR: In this article, the uncovered interest rate parity (UIP) puzzle is restated in terms of monetary policy, and monetary policy is represented as foreign and domestic Taylor rules, and the relationship between these Taylor rules and exchange rates is examined.
Journal ArticleDOI
Macro-finance models of interest rates and the economy
TL;DR: The evolution of economic ideas and models has often been altered by economic events as mentioned in this paper, and it also seems likely that the recent financial and economic crisis will both rearrange the economic landscape and affect the focus of economic and financial research going forward.
Journal ArticleDOI
Valuation Risk and Asset Pricing
TL;DR: This article propose a simple theory of asset pricing in which demand shocks play a central role, which gives rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.
References
More filters
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