Survey and option data are used to take a new look at the equity premium puzzle. Survey data on equity returns (Livingston survey) shows much lower expected excess returns than ex post data. At the same time, option data (CBOE's VIX) indicates that investors overestimate the volatility of equity...

Abel (2002) shows that pessimism and doubt in the subjective distribution of the growth rate of consumption reduce the risk-free rate puzzle and the equity premium puzzle. We quantify the amount of pessimism and doubt in survey data on US consumption and income. Individual forecasters are, in...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

This paper extends the standard Mehra-Prescott one-good, pure exchange economy to the case where agents are assumed to be in ignorance of the true transition probabilities of the growth rate of output and to learn them using bayes rule. The main conclusion is that the proposed bayes model yields...

We use a production-based asset pricing model to investigate whether financial market imperfections are quantitatively important for pricing the cross-section of returns. Specifically, we use GMM to explore the stochastic Euler equation restrictions imposed on asset returns by optimal investment...

Survey and option data are used to take a fresh look at the equity premium puzzle. Survey data on equity returns (Livingston survey) shows much lower expected excess returns than ex post data. At the same time, option data suggests that investors tend to overestimate the volatility of equity...

This paper studies if the consumption-based asset pricing model can explain the cross-section of expected returns. The CRRA model and several refinements (habit persistence and idiosyncratic shocks) all imply that the conditional expected return is linearly increasing in the asset's conditional...

In this paper, I present a theory of dynamic economic growth, business cycles, and asset pricing that integrates (1) Marx's idea (and emphasized by Klein) of a two-class heterogeneity of the ownership structure of physical capital and human capital in a capitalist society, (2) Keynes' idea of...

Rietz (1988) and Barro (2006) subject consumption and dividends to rare disasters in the growth rate. We extend their framework and subject consumption and dividends to rare disasters in the growth persistence. We model growth persistence by means of two hidden types of economic slowdowns:...

Rietz (1988) and Barro (2006) subject consumption and dividends to rare disasters in the growth rate. We extend their framework and subject consumption and dividends to rare disasters in the growth persistence. Wemodel growth persistence by means of two hidden types of economic slowdowns:...