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On the Consequences of State Dependent Preferences for the Pricing of Financial Assets

Danthine, Jean-Pierre; Donaldson, John B; Giannikos, Chrisos - C.E.P.R. Discussion Papers - 2003

This Paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agent’s coefficient of relative risk aversion to vary with the underlying economy’s growth rate. Existence of equilibrium is proved and its asymptotic properties...

Persistent link: https://www.econbiz.de/10005497824

Preferences, Consumption Smoothing, and Risk Premia

Lettau, Martin; Uhlig, Harald - C.E.P.R. Discussion Papers - 1997

Risk premia in the consumption capital asset pricing model depend on preferences and dividends. We develop a decomposition which allows for the separate treatment of both components. We show that preferences alone determine the risk-return trade-off measured by the Sharpe-ratio. In general, the...

Persistent link: https://www.econbiz.de/10005666799

Risk, Uncertainty and Asset Prices

Bekaert, Geert; Engstrom, Eric; Xing, Yuhang - C.E.P.R. Discussion Papers - 2006

We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty … premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model …, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns. …

Persistent link: https://www.econbiz.de/10005124333

Risk, Uncertainty and Monetary Policy

Bekaert, Geert; Hoerova, Marie; Lo Duca, Marco - C.E.P.R. Discussion Papers - 2010

. We decompose the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty … monetary policy decreases risk aversion after about five months. Monetary authorities react to periods of high uncertainty by …

Persistent link: https://www.econbiz.de/10008784723

Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources

Jappelli, Tullio; Pischke, Jörn-Steffen; Souleles, Nicholas - C.E.P.R. Discussion Papers - 1995

Previous tests for liquidity constraints using consumption Euler equations have frequently used asset-based sample separation rules, arguing that low wealth consumers are more likely to be constrained. We propose an alternative sample separation rule using direct information on borrowing...

Persistent link: https://www.econbiz.de/10005789106

Estimating the Aggregate Consumption Euler Equation with State-Dependent Parameters

Mumtaz, Haroon; Surico, Paolo - C.E.P.R. Discussion Papers - 2011

The consumption Euler equation is a building block of modern macro theory. Yet, the existing evidence on aggregate data offers very conflicting results for the estimates of the degree of forward-lookingness and interest rate semi-elasticity. The disappointing performance can be rationalized by...

Persistent link: https://www.econbiz.de/10008854511

Euler Equation Errors

Lettau, Martin; Ludvigson, Sydney - C.E.P.R. Discussion Papers - 2005

Among the most important pieces of empirical evidence against the standard representative-agent, consumption-based asset pricing paradigm are the formidable unconditional Euler equation errors the model produces for a broad stock market index return and short-term interest rate. Unconditional...

Persistent link: https://www.econbiz.de/10005791515

C-CAPM Without Ex Post Data

Söderlind, Paul - C.E.P.R. Discussion Papers - 2005

Survey and option data are used to take a new look at the equity premium puzzle. Survey data on equity returns (Livingston survey) shows much lower expected excess returns than ex post data. At the same time, option data (CBOE's VIX) indicates that investors overestimate the volatility of equity...

Persistent link: https://www.econbiz.de/10005504791

Can Rare Events Explain the Equity Premium Puzzle?

Ghosh, Anisha; Julliard, Christian - C.E.P.R. Discussion Papers - 2012

Probably not. First, allowing the probabilities of the states of the economy to differ from their sample frequencies, the Consumption-CAPM is still rejected in both U.S. and international data. Second, the recorded world disasters are too small to rationalize the puzzle unless one assumes that...

Persistent link: https://www.econbiz.de/10011084458

Asset Prices in a Lifecycle Economy

Farmer, Roger E A - C.E.P.R. Discussion Papers - 2014

The representative agent model (RA) has dominated macroeconomics for the last thirty years. This model does a reasonably good job of explaining the co-movements of consumption, investment, GDP and employment during normal times. But it cannot easily explain movements in asset prices. Two facts...

Persistent link: https://www.econbiz.de/10011084625