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
Citations
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Essays on Asset Pricing and Portfolio Choice
TL;DR: Wachter et al. as mentioned in this paper used a model with rare consumption disaster risk to explain the properties of the nominal term structure of interest rates and time-varying bond risk premia.
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Robust learning in the foreign exchange market
Edouard Djeutem,Pierre Nguimkeu +1 more
TL;DR: Otrok et al. as discussed by the authors studied risk premia in the foreign exchange market when investors entertain multiple models for consumption growth and showed that robust learning not only explains unconditional risk pre-emption in the stock market, but also explains the dynamics of risk preconditioning.
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Common Risks in the Eurozone
TL;DR: In this paper, the authors construct a single consistent jump diffusion model with stochastic volatility which incorporates a common Eurozone shock factor to value currency, interest and sovereign debt products in European financial markets.
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Beta inversion effect of COVID-19 pandemic using capital asset pricing model
Mohammad Al-Dwiry,Weaam Amira +1 more
TL;DR: This paper analyzed the effect of the beta inversion on COVID-19 by applying the capital asset pricing model and difference-in-differences (DiD) model in the US covering the five-year period from April 26, 2017, to April 22, 2022.
Hedge Funds and Treasury Market Price Impact: Evidence from Direct Exposures
TL;DR: In this paper , the role of changes in hedge fund exposures in driving U.S. Treasury prices and the yield curve was investigated using confidential hedge-fund data from the SEC's Form Private Fund (PF).
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.
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