We extend a recent methodology, Bayesian stochastic model specification search (SMSS), for the selection of the unobserved components (level, slope, seasonal cycles, trading days effects) that are stochastically evolving over time. SMSS hinges on two basic ingredients: the non-centered...

Motivated by the implications from a stylized self-contained general equilibrium model incorporating the effects of time-varying economic uncertainty, we show that the difference between implied and realized variation, or the variance risk premium, is able to explain a non-trivial fraction of...

Stock market volatility clusters in time, carries a risk premium, is fractionally integrated, and exhibits asymmetric leverage effects relative to returns. This paper develops a first internally consistent equilibrium based explanation for these longstanding empirical facts. The model is cast in...