We extend the canonical income process with persistent and transitory risk to shock distributions with left …-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household … show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications …

way to come up with a measure of time-varying disaster risk in the spirit of Wachter (2013). Our findings imply that both … the disaster and the long-run risk paradigm can be extended towards explaining movements in the stock-bond return …

We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks …-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage … shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life …

Residual income valuation is based on the assumption that the clean surplus relation holds. As pointed out by Ohlson … (2000), among others, the standard clean surplus relation is frequently violated. Moreover, standard residual income …

This paper considers the intertemporal consumption/savings decision when income follows a random walk with drift and … posterior for the drift coefficient and future income. This parameter uncertainty increases by an order of magnitude the … uncertainty of future income over that generated by unknown future shocks to income and can lead agents to have much more …

real economic activity growth, in line with a risk shock. Conversely, a certainty shock (a shock strongly decreasing …