Recent findings on the term structure of equity and bond yields pose serious challenges to existing equilibrium asset pricing models. This paper presents a new equilibrium model to explain the joint historical dynamics of equity and bond yields (and their yield spreads). Equity/bond yields...

We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk...

I propose a consumption-based asset pricing model in which the decision maker prices contingent cash flows realized at different future horizons and exposed to multiple shocks. The decision maker ignores the objective probability generating the data, and she evaluates a set of models that is...

We examine the informational content of TIPS yields from the viewpoint of a general 3-factor no-arbitrage term structure model of inflation and interest rates. Our empirical results indicate that TIPS yields contained a "liquidity premium" that was until recently quite large (~1%). Key features...

The shape of the term structure of credit default swap spreads is an informative signal about the relative importance of global and domestic risk factors to the time variation of sovereign credit spreads. Using a geographically dispersed panel of 44 countries, I show that the relative importance...

We solve a dynamic general equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates,...

In this paper I show that the difficulty in estimating unconditional means from time series data alone is the cause for the lack of robustness in empirical estimates of the workhorse model in macro-finance. Using US and UK yield curve data and an extensive Monte Carlo study I show that using...

We study feedback from the risk of outstanding mortgage-backed securities (MBS) on the level and volatility of interest rates. We incorporate supply shocks resulting from changes in MBS duration into a parsimonious equilibrium dynamic term structure model and derive three predictions that are...

This paper studies the impact of ambiguous information regarding future interest rates on bond prices. A simple bond-pricing model with ambiguity aversion shows that positive bond uncertainty premiums exist, and the interest rate ambiguity affects the term structure of interest rates and yield...

The paper investigates the risky sovereign spreads and the CDS-Bond basis of a country following a fixed exchange rate under a Currency Board Arrangement (CBA). The particular monetary regime affects significantly the mechanics of the bond market and needs a special investigation. We start by...