We study consumption-based asset pricing models which allow for both habit persistence and durability of consumption goods. using quarterly consumption and asset return data for six countries. We estimate the parameters representing habit persistence or durability. risk version and time...

The predictability of the market return and dividend growth is addressed in an equilibrium model with two regimes. A state variable that drives the conditional means of the aggregate consumption and dividend growth rates follows different time-series processes in the two regimes. In linear...

An economy in which investors know the true model and its parameters and filter the regime probability from aggregate consumption history has been empirically rejected. Hypothesizing that prices partly reflect investorsʼ belief about the regime, we infer beliefs from prices. The model fits well...

We present evidence that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and play a major role in driving asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences and a single state variable drives the...

We document that the implied volatility skew of S&P 500 index puts is non-decreasing in the disaster index and risk-neutral variance, contrary to the implications of a broad class of no-arbitrage models. The key to the puzzle lies in recognizing that, as the disaster risk increases, customers...

American options on the S&P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations...

Ongoing questions on the historical mean and standard deviation of the return on equities and bonds and on the equilibrium demand for these securities are addressed in the context of a stationary, overlapping-generations economy in which consumers are subject to a borrowing constraint. The key...

Proposals that portion of the Social Security Trust Fund assets be invested in equities entail the possibility that a severe decline in equity prices renders the Fund assets insufficient to provide the currently mandated level of benefits. In this event, existing taxpayers may be compelled to...

The Euler equations of consumption are tested on the household consumption of non-durables and services, reconstructed from the CEX database. The estimated relative risk aversion coefficient of the representative household decreases, and the estimated unexplained mean equity premium decreases,...

We explore the consequences for asset pricing of admitting a bequest motive into an otherwise standard overlapping generations model where agents trade equity and perpetual debt securities. Prices of securities are seen to be approximately 50% higher in an economy with bequests as compared to an...