This paper takes a close look at the quot;behavioural financequot; explanations of the equity premium puzzle, namely myopic loss aversion (Benartzi and Thaler, 1995) and disappointment aversion (Ang, Bekaert and Liu, 2000). The paper proposes a simple specification of loss and disappointment...

In this paper we show that a two-factor constant volatility model provides an adequate description of the dynamics and shape of the German term structure of interest rates from 1972 up to 1998. The model also provides reasonable estimates of the volatility and term premium curves. Following the...

This paper proposes the use of the two-factor term-structure model of Longstaff and Schwartz (1992a, LS) to estimate the risk-neutral density (RND) of the future short-term interest rate. The resulting RND can be interpreted as the market's estimate of the density of the future short-term...

This study presents and tests an approach for the pricing of equity investments, using multiples from comparable assets that are traded and priced in the market already. The innovative aspect of this approach is that we use key performance indicators (quot;kpiquot;) to select assets for the set...

This paper presents a dynamic theory of housing market fluctuations. It develops a life-cycle model where households are heterogeneous with respect to income and preferences, and mortgage lending is restricted by a down-payment requirement. The market interaction of young credit-constrained...

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to fall. We show that these conditions neither imply,...

This paper develops a broad concept of systemic risk, the basic economic concept for the understanding of financial crises. It is claimed that any such concept must integrate systemic events in banking and financial markets as well as in the related payment and settlement systems. At the heart...

In this paper, we introduce regime-switching in a two-factor stochastic volatility (SV) model to explain the behavior of short-term interest rates. We model the volatility of short-term interest rates as a stochastic volatility process whose mean is subject to shifts in regime. We estimate the...

Relying on a present value model with time-varying expected returns, and incorporating a quite general class of processes to model bubble like stock price deviations from the long-run equilibrium, we provide empirical evidence on the US log dividend-price ratio over the 1871:1 - 2001:9 period,...

The existence of periodically collapsing bubbles in stock markets, applying the Enders-Siklos momentum threshold autoregressive model, is empirically investigated in this paper. Using this non-linear time series technique, we are now able to analyse bubble driven run-ups in stock prices followed...