This paper investigates Euler equations involving security prices and household-level consumption data. It provides a useful complement to many existing studies of consumption-based asset pricing models that use a representative-agent framework, because the Euler equations under investigation...

Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for option prices. However, relatively little is known about the resulting biases. We investigate...

This paper investigates the importance of market incompleteness by comparing the rates of risk aversion estimated from complete and incomplete markets environments. For the incomplete-markets case, we use consumption data for 50 U.S. states. While the use of state-level data is conceptually...

Existing estimates of the welfare cost of business cycles suggest that it is quite low and might well be minuscule. Many of these estimates are based on aggregated U.S. consumption data. Arguably, because markets are incomplete and risk-sharing is imperfect, the welfare costs computed with...

We strongly reject the full-insurance hypothesis, using testing variables that are not decision variables for the households under investigation. We find that households are not insured against changes in the unemployment rate associated with the household heads occupational category. Using this...

This paper investigates the importance of idiosyncratic consumption risk for the cross-sectional variation in asset returns. We find that besides the rate of aggregate consumption growth, the cross-sectional variance of consumption growth is also a priced factor. This suggests that consumers are...