We use a large cross-section of equity returns to estimate a rich affine model of equity prices, dividends, returns and their dynamics. Using the model, we price dividend strips of the aggregate market index, as well as any other well-diversified equity portfolio. We do not use any dividend...

Empirical research on the permanent income hypothesis (PIH) has found that consumption growth is excessively sensitive to predictable changes in income. This finding is interpreted as strong evidence against the PIH. We propose an explanation for apparent excess sensitivity that is based on a...

In conventional stochastic simulation algorithms, Monte Carlo integration and curve fitting are merged together and implemented by means of regression. We perform a decomposition of the solution error and show that regression does a good job in curve fitting but a poor job in integration, which...

We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically...

The Euler equations of consumption are tested on the household consumption of non-durables and services, reconstructed from the CEX database. The estimated relative risk aversion coefficient of the representative household decreases, and the estimated unexplained mean equity premium decreases,...

We provide a general framework for investigating partial identification of structural dynamic discrete choice models and their counterfactuals, along with uniformly valid inference procedures. In doing so, we derive sharp bounds for the model parameters, counterfactual behavior, and...

When researchers develop new econometric methods it is common practice to compare the performance of the new methods to those of existing methods in Monte Carlo studies. The credibility of such Monte Carlo studies is often limited because of the freedom the researcher has in choosing the design....

We propose a new method for solving high-dimensional dynamic programming problems and recursive competitive equilibria with a large (but finite) number of heterogeneous agents using deep learning. The "curse of dimensionality" is avoided due to four complementary techniques: (1) exploiting...

We propose a new methodology to build portfolios that hedge the economic and financial risks from climate change. Our quantity-based approach exploits information on how mutual fund managers trade in response to idiosyncratic changes in their climate risk beliefs. We exploit two types of...

Motivated by the regional bank crisis of 2023, we model the impact of interest rates on the liquidity risk of banks. Prior work shows that banks hedge the interest rate risk of their assets with their deposit franchise: when interest rates rise, the value of the assets falls but the value of the...