We develop a model of political cycles driven by time-varying risk aversion. Heterogeneous agents make two choices … risk aversion is high, agents are more likely to elect the party promising more fiscal redistribution. The model predicts … higher average stock market returns under Democratic than Republican presidencies, explaining the well-known "presidential …

returns. We also find a positive but insignificant relation between idiosyncratic risk and future bond returns, suggesting …-specific risk. The composite measure of systematic risk also predicts the distribution of future market returns, and the systematic …We propose a comprehensive measure of systematic risk for corporate bonds as a nonlinear function of robust risk …

We present a new model of asset prices in which investors evaluate risk according to prospect theory and examine its …

We characterize the joint dynamics of dividends, expected returns, stochastic volatility, and prices. In particular … the dynamics of the expected return and the price-dividend ratio. By parameterizing one or more of expected returns … of the other variables. Our relations are useful for understanding the risk-return trade-off, as well as characterizing …

This paper measures the effects of the risk of war on nine U.S. financial variables using a heteroskedasticity …-based estimation technique. The results indicate that increases in the risk of war cause declines in Treasury yields and equity prices …, a widening of lower-grade corporate spreads, a fall in the dollar, and a rise in oil prices. This war risk factor …

dividend yield is typically viewed as a reflection of either changing risk, related to the business cycle, or irrational … risk as well as expected return, we develop Bayesian methods to examine the interaction between the data and an investor … and a riskless asset. In general, however, the simple risk/return model of Merton (1980) explains very little of the yield …

components of systematic and diversifiable risk. Focusing on two periods around the 1973 switch from fixed to floating exchange … rates, we find a significant increase in the volatility of U.S. multinational monthly stock returns corresponding to the … increase in total volatility led to a significant increase in market risk (beta) for the multinational firms relative to the …

opportunities for investors. These markets exhibit high expected returns as well as high volatility. Importantly, the low … correlations with developed countries' equity markets significantly reduces the unconditional portfolio risk of a world investor …-section of average returns in emerging countries. An analysis of the predictability of the returns reveals that emerging market …

We distinguish the measure of risk aversion from the slope coefficient in the linear relationship between the mean … excess return on a stock index and its variance. Even when risk aversion is constant, the latter can vary significantly with … the predictable component in stock returns into two parts: the time-varying price of volatility and the time …

power for expected returns across a range of equity characteristic portfolios and non-equity asset classes, with risk price … estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk …