This paper develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyncratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals...

This paper studies the changes in world business cycles during 1960-2003. We employ a Bayesian dynamic latent factor model to estimate common and country-specific components in the main macroeconomic aggregates of the Group of Seven (G-7) countries. We then quantify the relative importance of...

Recent studies have documented the existence of a quot;predictability smilequot; in the term structure of interest rates: spreads between long maturity rates and short rates predict subsequent movements in interest rates provided the long horizon is three months or less or if the long horizon is...

Using a general equilibrium representative agent framework developed by Lucas (1978), Hansen and Singleton (1983) studied the behaviour of asset returns and consumption growth with maximum likelihood techniques. The model was rejected, but their work is commonly cited for estimates of the...

Daily data on short-term interest rates are used to show how changes in Federal Reserve operating procedures have affected the term structure. Yield spreads were helpful in predicting short-term interest rate movements during the nonborrowed reserves targeting period (1979-82), but not during...

This article develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyncratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals...

We use recent statistical tests, based on a 'distance' between the model and the Hansen-Jagannathan bound, to compute the rejection rates of true models. For asset-pricing models with time-separable preferences, the finite-sample distribution of the test statistic associated with the...