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| Author | : George M. Constantinides |
| Publisher | : |
| Total Pages | : 76 |
| Release | : 2011 |
| Genre | : |
| ISBN | : |
Download Asset Pricing Tests with Long Run Risks in Consumption Growth Book in PDF, ePub and Kindle
A novel methodology in testing the long-run risks model of Bansal and Yaron (2004) is presented based on the observation that, under the null, the potentially latent state variables, long-run risk and the conditional variance of its innovation, are known affine functions of the observable market-wide price-dividend ratio and risk free rate. In linear forecasting regressions of consumption growth and returns by the price-dividend ratio and risk free rate, the model implies much higher forecastability than what is observed in the data over 1931-2009. The co-integrated variant of the model by Bansal, Gallant, and Tauchen (2007), also implies much higher forecastability of returns than what is observed in the data. Finally, we reject the models' implications in jointly pricing the cross-section of returns and fitting the unconditional time series moments of consumption and dividend growth. The results suggest that either some important state variable is missing or that the models should be generalized in a way that the lagged price-dividend ratio and risk free enter the regressions in a non-linear fashion.
| Author | : George M. Constantinides |
| Publisher | : |
| Total Pages | : 57 |
| Release | : 2008 |
| Genre | : Assets (Accounting) |
| ISBN | : |
Download Asset Pricing Tests with Long Run Risks in Consumption Growth Book in PDF, ePub and Kindle
The Bansal and Yaron (2004) model of long-run risks (LRR) in aggregate consumption and dividend growth and its cointegrated extension are tested on a cross-section of assets and rejected over 1930-2006. Reversal of earlier conclusions is due to the increased power of the tests resulting from two observations under the null: the latent state variables and, therefore, the pricing kernel are known affine functions of observables; and, the unconditional moments of the time series processes impose constraints in addition to the pricing constraints. The models perform better in postwar subperiods, consistent with evidence of structural-breaks.
| Author | : George M. Constantinides |
| Publisher | : |
| Total Pages | : 57 |
| Release | : 2008 |
| Genre | : Rate of return |
| ISBN | : |
Download Asset Pricing with Long Run Risks in Consumption Growth Book in PDF, ePub and Kindle
| Author | : Jianfeng Yu |
| Publisher | : |
| Total Pages | : 47 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
Download Using Long-Run Consumption-Return Correlations to Test Asset Pricing Models Book in PDF, ePub and Kindle
This paper examines a new set of implications for existing asset pricing models regarding the correlation between returns and consumption growth over both the short run and the long run. The fi ndings suggest that external habit formation models face a challenge in producing two robust facts in aggregate data, namely, that stock market returns lead consumption growth, and that the correlation between returns and consumption growth is higher at low frequencies. To reconcile these facts with a consumption-based model, I demonstrate the need for focusing on models that contain a forward looking consumption component, i.e., models that allow for both trend and cyclical fluctuations in consumption, and that link returns to cyclical fluctuations in consumption. Long-run risk models provide examples of models that contain this consumption component.
| Author | : Ravi Bansal |
| Publisher | : |
| Total Pages | : 43 |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
Download Risks for the Long Run Book in PDF, ePub and Kindle
We model dividend and consumption growth rates as containing a small long-run predictable component and economic uncertainty (i.e., growth rate volatility) as being time-varying. The magnitudes of the predictable variation and changing volatility in growth rates, as in the data, are quite small. These growth rate dynamics, for which we provide empirical support, in conjunction with plausible parameter configurations of the Epstein and Zin (1989) preferences can explain key observed asset markets phenomena. In particular, we show that the model can justify the observed equity premium, the low risk free rate, and the ex-post volatilities of the market return, real risk free rate, and the price-dividend ratio. As in the data, the model also implies that dividend yields predict returns and that market return volatility is stochastic. The main economic insight we capture is that news about growth rates significantly alter agent's perceptions regarding long run expected growth rates and growth rate uncertainty--in equilibrium, this leads to a large equity risk premium, low risk free interest rate, and large market volatility.
| Author | : Wei Yang |
| Publisher | : |
| Total Pages | : 55 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Asset Pricing with Left-Skewed Long-Run Risk in Durable Consumption Book in PDF, ePub and Kindle
I document that durable consumption growth is persistent and predicted by the price-dividend ratio. This provides strong and direct evidence for the existence of a highly persistent expected component. I also document robust evidence that durable consumption growth is left skewed and exhibits time-varying volatility. Based on these empirical properties, I model durable consumption growth as containing a persistent expected component and driven by shocks with counter-cyclical volatility. I embed the durable consumption growth dynamics and random walk nondurable consumption growth in nonseparable Epstein-Zin preferences, and model dividend growth as a levered claim on the expected component of durable consumption growth. The resulting model can explain a number of asset pricing phenomena, including pro-cyclical price-dividend ratios, large and counter-cyclical equity premia and stock return volatilities, low and smooth risk-free rates, and the predictability of stock returns. The model also generates the volatility feedback effect and an upward sloping term structure of real bond yields.
| Author | : |
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Download Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles Book in PDF, ePub and Kindle
The National Bureau of Economic Research, Inc. (NBER) presents an abstract for a paper entitled "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," by Ravi Bansal and Amir Yaron and issued December 2000. The paper highlights how news about growth rates significantly alter agent's perceptions regarding long run expected growth rates and growth rate uncertainty. Users may purchase the full text of the paper.
| Author | : M. Ali Khan |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 441 |
| Release | : 2013-03-09 |
| Genre | : Business & Economics |
| ISBN | : 3662070715 |
Download Equilibrium Theory in Infinite Dimensional Spaces Book in PDF, ePub and Kindle
Apart from the underlying theme that all the contributions to this volume pertain to models set in an infinite dimensional space, they differ on many counts. Some were written in the early seventies while others are reports of ongoing research done especially with this volume in mind. Some are surveys of material that can, at least at this point in time, be deemed to have attained a satisfactory solution of the problem, while oth ers represent initial forays into an original and novel formulation. Some furnish alternative proofs of known, and by now, classical results, while others can be seen as groping towards and exploring formulations that have not yet reached a definitive form. The subject matter also has a wide leeway, ranging from solution concepts for economies to those for games and also including representation of preferences and discussion of purely mathematical problems, all within the rubric of choice variables belonging to an infinite dimensional space, interpreted as a commodity space or as a strategy space. Thus, this is a collective enterprise in a fairly wide sense of the term and one with the diversity of which we have interfered as little as possible. Our motivation for bringing all of this work under one set of covers was severalfold.
| Author | : John H. Cochrane |
| Publisher | : Now Publishers Inc |
| Total Pages | : 117 |
| Release | : 2005 |
| Genre | : Business & Economics |
| ISBN | : 1933019158 |
Download Financial Markets and the Real Economy Book in PDF, ePub and Kindle
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
| Author | : Ziemowit Bednarek |
| Publisher | : |
| Total Pages | : 19 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Long-run Risk, Durable Consumption Growth and Estimation of Risk Aversion Book in PDF, ePub and Kindle
We present a durable consumption-based asset pricing model with Epstein-Zin preferences and the pricing kernel accommodating the long-run consumption risk. Consumption growth includes a small predictable component as in Bansal and Yaron (2004). The model is estimated with simple econometric techniques once we linearize it around a special case of the elasticity of inter- and intra-temporal substitution equal to one. After including the long-run consumption growth, the estimates of the model parameters become much more realistic and the fit closer to the data than for the case of the contemporaneous consumption growth. For example, the estimate of risk aversion falls from around 200 to 10, and the R2 increases from around 30% to 60%.
