A complete markets consumption-based asset pricing model predicts that the behavior of expected real yields on nominally risk free bonds should be closely related to expected consumption growth, adjusted by the variance of consumption growth. In this paper, expected real yields and expected...

We construct a simple reduced-form example of a conditional pricing model with modest intrinsic nonlinearity. The theoretical magnitude of the pricing errors (alphas) induced by the application of standard linear conditioning are derived as a direct consequence of an omitted variables bias. When...

In this paper, we fit the pricing kernel for U.S. Treasury securities using the SAINTS model of Constantinides (1992). Under a simple version of the stochastic growth model, knowledge of the pricing kernel identifies the (continuously-compounded) money growth rate implied by bond prices. This...

We examine the connection between tail risk — as measured in Kelly and Jiang (2014) — and the cross-section of expected returns. In conditional predictive regression systems and vector-autoregressions of the market portfolio and the long- and shoresides of the Fama-French factor portfolios,...

This paper tests a simple consumption-based asset pricing model by approximating the true asset pricing kernel using low-order orthonormal polynomials based on the model's state variables. Approximated kernels based solely on next period's consumption growth are not rejected by overall measures...

Constantinides (1990) describes a simple model of intrinsic habit formation that appears to resolve the quot;equity premium puzzlequot; of Mehra and Prescott (1985). This finding is particularly important, since it has motivated a broader consideration of the implications of habit formation...

We examine the optimal consumption/saving and portfolio allocation responses of rational households subject to an exogenous change in the terms of the Social Security contract. Our analysis uses key features of the actual contract, an exogenous labor income process calibrated to IRS...

We examine the form, adoption rates, and economic rationale for the investment restrictions found in the contracts between mutual fund investors and managers. Based on a sample of U.S. domestic equity funds from 1994 to 2000, we find systematic patterns in the use of policy constraints that are...

The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally...