which financial markets were trying to allocate risk between heterogeneous agents when productive investment opportunities … are scarce. We begin by showing how heterogeneity in terms of risk tolerance can cause financial markets to propagate …

, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset … pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account …

expected exchange rate depreciations (appreciations) for high (low) interest rate currencies, suggesting that disaster risk is … priced in currency markets. To study the price of disaster risk, we propose a simple structural model that includes both … Gaussian and disaster risk and can be estimated even in samples that do not contain disasters. Estimating the model over the …

asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal …

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 …

unconditional cross-sectional moments of household consumption growth and the moments of the risk-free rate, equity premium, price …-dividend ratio, and aggregate dividend and consumption growth. The model-implied risk-free rate and price-dividend ratio are … procyclical while the market return has countercyclical mean and variance. Finally, household consumption risk explains the cross …

growth rates, or stochastic probability of disaster, asset pricing with stochastic risk premia or stochastic dividend growth …