We investigate the sources of time-variation in the stock-oil correlation over the period 1986-2018. We first derive an oil futures return news decomposition following Campbell and Shiller (1988) and Campbell (1991). Then, for both stock and oil, we split unexpected returns into cash-flow news...

This paper proposes a framework to study contagious stock bubbles in a multi-sector production economy with heterogeneous investment technologies. Due to financial frictions, stock bubbles arise endogenously that help inject additional liquidity. Due to financial linkages, the existence of...

An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond...

The paper analyses the effect of equity price shocks on current account positions for the G7 industrialized countries in 1974-2007. It uses a Bayesian VAR with sign restrictions for the identification of asset price shocks and to test empirically for their effect on current accounts. Such shocks...

Stock market variance-return or price relations are sometimes negative and sometimes positive. We explain these puzzling findings using a model with two ("bad" and "good") variances. In the model, conditional equity premium depends positively on bad variance and negatively on good variance....

The finance industry has grown, financial markets have become more liquid, information technology has been revolutionized. But have financial market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from...

This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro...

Purpose: There is an undeveloped market for the broader distribution of future capital acquisition and income in which the price (cost) paid for acquisition of securities to realize future capital income plays a crucial role. Our objective in this paper is to propose a new loan which facilitates...

With overlapping generations and heterogeneous risk aversion there is no unique relation between aggregate risk aversion and the real rate of interest, and this type of endogenous “noise” cannot arise in an economy where agents live forever. Our framework accommodates many agent types and...

The study investigates the dynamic effect of macroeconomic variables on BSE returns. In recent phenomena, stock market is a leading indicator of an economy growth and economic fundamentals are determinants of the stock market movements. The study results found that selected macroeconomic...