explanation for this puzzle is based on prospect theory. Despite its prominence, this explanation has received little formal … scrutiny. We take up this task, and analyze the trading behavior of investors with prospect theory preferences. We find that …, at least for the simplest implementation of prospect theory, the link between these preferences and the disposition …

and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during …. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have … significantly larger nominal bond risk premia and borrow less in local currency …

foreign real bonds. Bonds matter: in equilibrium, investors structure their bond portfolio to hedge real exchange rate risk … since relative bond returns are strongly correlated with real exchange rate movements. Equity home bias does not arise from … against other sources of risk, conditionally on bond returns. We estimate the optimal equity and bond portfolios implied by …

Value stocks have higher exposure to innovations in the nominal bond risk premium, which measures the markets … when nominal bond risk premia are low and declining, are associated with lower future dividend growth rates on value minus … growth and with lower future output growth in the short term. Because of this new nexus between stock and bond returns, a …

Currency denomination is a prominent feature in the analysis of the structure of international bond markets, but is … bond holdings--indirectly because the global holdings dataset does not differentiate by currency denomination--and then …

Duffie (1996), households only use the stock market to smooth consumption; the bond market is inoperative. Furthermore we …