We propose a novel one-sector stochastic growth model, where producitivity growth follows a Markov-switching process with two regimes, and where households have generalized recursive smooth ambiguity preferences. The adopted class of preferences permits a three-way separation of risk aversion,...

Realized divergence gauges the distinct realized moments associated with time-varying uncertainty and is tradeable with divergence swaps engineered from delta-hedged option portfolios. Consistently with established notions of symmetry in arbitrage-free option markets, implied divergence...

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate...

Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

We propose a novel one-sector stochastic growth model, where producitivity growth follows a Markov-switching process with two regimes, and where households have generalized recursive smooth ambiguity preferences. The adopted class of preferences permits a three-way separation of risk aversion,...

The longest bull market in US stock market history is over. Uncertainty over the public health and economic impact of the coronavirus pandemic will keep markets extremely volatile, making it likely we'll touch a wide range of price levels in the months ahead. Amidst such uncertainty, it's a...

Decision-makers typically rely on informative starting points that are somewhat incorrect and then attempt to make appropriate adjustments. Such reliance on informative starting points may be an optimal response of a Bayesian decision-maker who faces finite computational resources (Lieder et al...

We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey...

Several countries have banking policies geared towards providing access to credit to ethnic or religious minorities, e.g., India, China, Malaysia, South Africa, United States. In this paper, we characterize the compensating risk premium for such minority bank (MB) policies. Our theory apparatus...

We elicit time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premium across 27 countries. It implies that in countries where participants tend to be more short-term oriented, higher historical...