an additional hedging motif driven by the interaction between real exchange rate risk and ambiguity aversion. What … matters is the long-run as opposed to the short-run risk. Domestic equity is a good hedge with respect to long-run real … exchange rate risk even when bonds are traded. The higher is the degree of ambiguity aversion, the stronger is the home bias …

equity premium, the extent of predictability is smaller than in the data. In this model, the risk-free asset market plays a … process concentrates nonstockholders' aggregate labor income risk among a small group of stockholders, who then demand a high … premium for bearing the aggregate equity risk. Furthermore, this mechanism is consistent with the very small share of …

substitution over time --namely that 'the' interest rate in aggregate theory is not the promised yield on a Treasury Bill or Bond …