We introduce a new meaure of risk appetite in financial markets, based on the cross sectional behavior of excess returns. Turning them into probabilities through a Markov Switching model, we define one global risk appetite measure as the cross-sectional average of the individual probabilities...

The last 30 years saw substantial increases in wealth inequality and in stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and in the expected equity premium, as well as a prolonged stock market boom....

We test whether asymmetric preferences for losses versus gains as in Ang, Chen, and Xing (2006) also affect the pricing of cash flow versus discount rate news as in Campbell and Vuolteenaho (2004). We construct a new four-fold beta decomposition, distinguishing cash flow and discount rate betas...

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets...

Rational asset pricing models should hold across assets. Nevertheless, in practice they are often developed and tested on a single asset pricing anomaly. This approach can lead to an overabundance of idiosyncratic ‘rational' explanations. The paper demonstrates the problem by showing that...

We provide theoretical and empirical arguments in favor of a diminishing marginal premium for market risk. In capital market equilibrium with binding portfolio restrictions, investors with different risk aversion levels generally hold different sets of risky securities. Whereas the traditional...

If the firm chooses the stock of capital, labor, cash (distributions) so as to maximize its expected discounted present value, its investment policy should adjust endogenously to changes in investor preferences. It is hypothesized that quantitative easing (QE) affects asset prices through a...

Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve's large-scale asset purchases (LSAPs), we study the changes to expected returns. Through a simple general equilibrium model, we motivate how LSAPs may impact equilibrium bond and equity expected...

We explore the effects of fat tails on the equilibrium implications of the long run risks model of asset pricing by introducing innovations with dampened power law to consumption and dividends growth processes. We estimate the structural parameters of the proposed model by maximum likelihood. We...

The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable...