Can consumption-based mechanisms generate positive and time-varying real term premia as we see in the data? I show that only models with time-varying risk aversion or models with high consumption risk can independently produce these patterns. The latter explanation has not been analysed before...

We propose a novel measure of risk perceptions: the price of volatile stocks (PVSt), defined as the book-to-market ratio of low-volatility stocks minus the book-to-market ratio of high-volatility stocks. PVSt is high when perceived risk directly measured from surveys and option prices is low....

It is well-known that interest rates are extremely persistent, yet they are best modeled and understood as stationary processes. These properties are contradictory in the workhorse Gaussian affine term structure model in which persistent data often result in unit roots that imply...

We introduce a reduced-form term structure model with closed-form solutions for yields where the short rate and market prices of risk are nonlinear functions of Gaussian state variables. The nonlinear model with three factors matches the time-variation in expected excess returns and yield...

The zero-coupon yield curve is a common input for most financial purposes. The authors consider three popular yield curve datasets, and explore the extent to which the decision as to what dataset to use for an application may have implications on the results. The paper illustrates why such...

Because of the uncertainty about how to model the growth process of our economy, there is still much confusion about which discount rates should be used to evaluate actions having long-lasting impacts, as in the contexts of climate change, social security reforms or large public infrastructures...

This paper examines the lognormality assumption of per capita, real consumption growth, which is a common assumption in asset pricing models. We found that shocks to household consumption growth are persistent, negatively skewed, and have excess kurtosis. Therefore, we revisited the fundamental...

Starting from the discrete-time a ne term structure model by Dai, Le & Singleton (2006), this paper proposes a Radon-Nikodym derivative which implies that factors follow a mixture distribution under the physical measure. The model thus maintains attractive features of an affine relation between...

This paper proposes a term structure model with macro VAR in a stochastic volatility setting. The specific feature of this model is that the risk premium of yields is directly driven by the time-varying variance-covariance of the VAR innovations, which is modeled by a Wishart Autoregressive...