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This paper proposes a dynamic risk-based model that captures the high expected returns on value stocks relative to …, but that shocks to the time-varying price of risk are not. As long-horizon equity, growth stocks covary more with this … time-varying price of risk than value stocks, which covary more with shocks to cash flows. When the model is calibrated to …
Persistent link: https://www.econbiz.de/10012784914
value premium is larger in %u201Cbad times,%u201D due to time variation in risk preferences; (c) the unconditional CAPM … with empirical evidence, the model shows that (a) value stocks are those with higher cash-flow risk; (b) the size of the … rationalizes why the conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM …
Persistent link: https://www.econbiz.de/10012783344
linking the CIV factor to income risk faced by households. These three facts are consistent with an incomplete markets …
Persistent link: https://www.econbiz.de/10013054863
represented as the sum of three components which we call the consumption-risk, event-risk, and corporate-risk premia. Calibrating …
Persistent link: https://www.econbiz.de/10012786350
We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish … short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the … propose a sparsity-based bounded rationality model of long-run risk that is both parsimonious and fully identified from …
Persistent link: https://www.econbiz.de/10012755422
When excess returns are used to estimate linear stochastic discount factor (SDF) models, researchers often adopt a normalization of the SDF that sets its mean to 1, or one that sets its intercept to 1. These normalizations are often treated as equivalent, but they are subtly different both in...
Persistent link: https://www.econbiz.de/10013134862
This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work, and … on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount … conditional mean of the SDF, while patterns of risk premia restrict its conditional volatility and factor structure. Stylized …
Persistent link: https://www.econbiz.de/10012763342
We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed … inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate …
Persistent link: https://www.econbiz.de/10012784498
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 …
Persistent link: https://www.econbiz.de/10013054039
The term structure of equity returns is downward-sloping: stocks with high cash flow duration earn 1.10% per month lower returns than short-duration stocks in the cross section. I create a measure of cash flow duration at the firm level using balance sheet data to show this novel fact. Factor...
Persistent link: https://www.econbiz.de/10012984772