What is the best way to incorporate a risk premium into the discount rate schedule for a real investment project with … uncertain payoffs? The standard CAPM formula suggests a beta-weighted average of the return on a safe investment and the mean … return on an economy-wide representative risky investment. Suppose, though, that the project constitutes a tail …

help to explain the enormous counter-cyclical volatility of aggregate risk compensation in financial markets. To answer … active investors adjust their portfolio each period to respond to changes in the investment opportunity set. We find that … these intermittent re-balancers more than double the effect of aggregate shocks on the time variation in risk premia by …

risk-sharing. General equilibrium models and consumption data tend to find that the costs are small, typically less than … higher variability of stocks, and/or (b) the higher degree of risk aversion required to reconcile an international equity …

The foreign exchange risk premium in an exchange rate target zone regime with devaluation/realignment risks is derived … devaluation/realignment risk, is taken into account. The risk premium is then the sum of two separate risk premia, arising from … real and nominal exchange rate premia are considered. The real and nominal risk premia from movements within the band are …

We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish … short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the … propose a sparsity-based bounded rationality model of long-run risk that is both parsimonious and fully identified from …

In a standard incomplete markets model with a continuum of households that have constant relative risk aversion (CRRA …) preferences, the absence of insurance markets for idiosyncratic labor income risk has no effect on the premium for aggregate risk … if the distribution of idiosyncratic risk is independent of aggregate shocks and aggregate consumption growth is …

values and optimal investment decisions. The method is quite general, and is illustrated both analytically and numerically …, on mine values and investment decisions. Although the tax policies are found to have the expected effects on asset values …, the effects on investment decisions are sometimes perverse. An increase in the income tax rate may encourage investment …

This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically …

with empirical evidence, the model shows that (a) value stocks are those with higher cash-flow risk; (b) the size of the … value premium is larger in "bad times," due to time variation in risk preferences; (c) the unconditional CAPM fails, because …

global macroeconomic fundamental risk. The risk factor is the cross-country high-minus-low conditional skewness of the …