A disturbing feature of the conventional objective function for intertemporal decisions under uncertainty is that the agent's attitudes toward intertemporal substitution and risk aversion are entangled. This paper shows that, in contrast to common perception, the two attitudes can be completely...

Rational bubbles are believed to be fragile and unable to explain the trading frenzy associated to price run-ups. With limited enforcement of credit contracts and endogenous debt limits designed to prevent default and allow for maximal credit expansion, a large class of bubbles can be introduced...

The equity premium (also called market risk premium, equity risk premium, market premium and risk premium), is one of the most important, discussed but elusive parameters in finance. The term equity premium is used to designate four different concepts (although many times they are mixed):...

Standard consumption-based asset pricing models focus on the consumption risk, seen as the only source of fluctuations and information about risk for the informed investor. These models, however, can account for high expected excess stock return only when assuming implausible relative risk...

Bansal and Yaron (2004) demonstrate, by calibration, that the Consumption-Based Capital Asset Pricing Model (CCAPM) can be rescued by assuming that consumption growth rate follows a stochastic volatility model. They show that the conditional equity premium is a linear function of conditional...

This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16...

This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16...

House prices have risen quite sharply since 2000. Coming on the heels of a stock market crash, many analysts have raised the specter of collapse in house prices and have conjured up dire consequences from such a collapse. This article examines the extent of the house price rise, whether there...

If asset returns are predictable, then rational expectations and the arithmetic of budget constraints together imply that these predictable changes in returns should affect current consumption. This paper presents a new framework linking consumption, income, and observable assets to expectations...

I present a consumption-based asset pricing model that is capable of matching the empirically observed Sharpe ratios of the aggregate market portfolio as well as the Fama-French value-minus-growth portfolio. The model also matches the level of the risk-free rate and the equity premium with a...