We propose an asset pricing model with generalized disappointment aversion preferences and long-run volatility risk. With Markov switching fundamentals, we derive closed-form solutions for all returns moments and predictability regressions. The model produces first and second moments of...

We propose a new methodology for modeling and estimating time-varying downside risk and upside uncertainty in equity returns and for assessment of risk--return trade-off in financial markets. Using the salient features of the binormal distribution, we explicitly relate downside risk and upside...

We develop a discrete-time affine stochastic volatility model with time-varying conditional skewness (SVS). Importantly, we disentangle the dynamics of conditional volatility and conditional skewness in a coherent way. Our approach allows current asset returns to be asymmetric conditional on...