This paper studies a multi-factor, two-country term structure and exchange rate model when a diversification effect for an international bond portfolio is expected. It shows that the diversification gain calls upon certain restrictions on the process of the stochastic discount factor in a...

We posit the opportunity cost of time required to manage risky investments, including conducting research and performance monitoring, as a potential explanation for the equity premium puzzle. An economic agent, who should allocate a limited amount of time to labor, leisure, and risky investment,...