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 …

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the … large risks, we show that decreasing absolute risk aversion guarantees that the precautionary saving motive is stronger than … risk aversion, regardless of the elasticity of intertemporal substitution. Holding risk preferences fixed, the extent to …

form. This is not a contribution to the theory of aggregation generally. Instead it is a microfoundation for a specific but … theory, the utility function when there is household production, human capital theory, and the concept of the aggregate …

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 …

measures of consumption and prices to assess risk-sharing opportunities, as in the empirical work on the Backus-Smith puzzle …