, 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 …

-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle … fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia …, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition …

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 …

Uncertainty appears to jump up after major shocks like the Cuban Missile crisis, the assassination of JFK, the OPEC I … uncertainty shocks. I build a model with a time varying second moment, which is numerically solved and estimated using firm level … data. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound …

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

the guarantee-extending parties to "walk away". I derive the optimal risk management rule in such a framework and show … that it allows high volatility choices, while net worth is high. However, risk limits tighten abruptly when the firm's net … risk management rules, and can account for phenomena such as "flight to quality" …