Risk premia and term premia in general equilibrium
TLDR
The authors analyzes term premia and risk premia in a general equilibrium model with catching up with the Joneses preferences and a novel formulation of leverage, and provides an algorithm to match the means and variances of the riskless rate and the rate of return on equity.About:
This article is published in Journal of Monetary Economics.The article was published on 1999-02-19 and is currently open access. It has received 454 citations till now. The article focuses on the topics: Equity risk & Equity premium puzzle.read more
Citations
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Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Ravi Bansal,Amir Yaron +1 more
TL;DR: The authors model consumption and dividend growth rates as containing a small long-run predictable component, and fluctuating economic uncertainty (consumption volatility), for which they provide empirical support, in conjunction with Epstein and Zin's (1989) preferences, can explain key asset markets phenomena.
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Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets
James J. Claus,Jacob K. Thomas +1 more
TL;DR: In this article, the authors estimate the equity premium from the discount rate that equates market valuations with prevailing expectations of future flows, and find that the average equity premium is around three percent (or less) in the United States and five other markets.
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Habit formation: a resolution of the equity premium puzzle?
TL;DR: In this article, the authors explore how the introduction of habit preferences into the simple intertemporal consumption-based capital asset pricing model "solves" the equity premium and risk-free rate puzzles.
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Housing, consumption and asset pricing
TL;DR: In this paper, a consumption-based asset pricing model where housing is explicitly modeled both as an asset and as a consumption good is proposed, and the model predicts that the housing share can be used to forecast excess returns on stocks.
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Consumption-based asset pricing
TL;DR: This article reviewed the behavior of financial asset prices in relation to consumption, including stock returns and short-term real interest rates, but bond returns were also considered, and argued that to make sense of asset market behavior one needs a model in which the market price of risk is high, time-varying, and correlated with the state of the economy.
References
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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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Asset prices in an exchange economy
TL;DR: In this article, the authors examine the stochastic behavior of equilibrium asset prices in a one-good, pure exchange economy with identical consumers, and derive a functional equation for price as a function of the physical state of the economy.
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By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
TL;DR: This paper presented a consumption-based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
ReportDOI
Asset Prices under Habit Formation and Catching Up with the Joneses
TL;DR: In this paper, the authors introduce a utility function that nests three classes of utility functions: (1) time-separable utility functions, (2) "catching up with the Joneses" utility functions that depend on the consumer's level of consumption relative to the lagged cross-sectional average level, and (3) utility functions displaying habit formation.
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Asset pricing in production economies
TL;DR: In this article, a model with habit formation preferences and capital adjustment costs was proposed to explain the historical equity premium and the average risk-free return while replicating the salient business cycle properties.
Related Papers (5)
By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Ravi Bansal,Amir Yaron +1 more