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 equity term structure slopes up, contrary to the data. In...

This Paper uses restrictions implied by cointegration to identify the permanent and transitory elements (the ‘trend’ and ‘cycle’) of household asset wealth. Our empirical analysis yields answers to the following questions: 1. Is there a large transitory component in household net worth...

Property rights are a key aspect of the rules governing economic interactions, providing individuals with dependable information and incentives. Well-defined and stable property rights encourage the effective use of existing scarce resources and also provide the incentive to innovate. In this...

While both errors of overoptimism and errors of overpessimism are possible in the face of imperfect information, the presence of option value from deferring a decision to exchange causes trader errors to be overpessimistically biased. This is problematic because unlike errors of overoptimism,...

The Market Process presents a series of important and innovative articles written by economists of the Austrian School. Covering the gamut of economic issues, including equilibrium theory, free banking, public choice, and the problems of contemporary social reform, the book is an ideal...

Market process theory is principally concerned with explaining how the market moves towards a state of general economic equilibrium and how production and consumption plans become coordinated. Market Process Theories presents in two volumes the most important articles by leading economists which...

The Elgar Companion to Austrian Economics is a major new reference work which highlights the common ground between all the branches of the school while demonstrating the breadth and diversity within it. The Companion reflects the many areas where Austrian economists have made contributions,...

This paper explores the ability of theoretically based asset pricing models such as the CAPM and the consumption CAPM-referred to jointly as the (C)CAPM - to explain the cross-section of average stock returns. Unlike many previous empirical tests of the (C)CAPM, we specify the pricing kernel as...

Evidence of stock return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This paper shows that these seemingly incompatible results can be reconciled if the...

The standard, representative agent, consumption-based asset pricing theory based on CRRA utility fails to explain the average returns of risky assets. This is evident from the large unconditional Euler equation errors, or pricing errors (terms we use interchangeably), that the model generates...