This paper studies the relation between firm value and a firm's growth options. We find strong empirical evidence that (average) Tobin's Q increases with firm-level volatility. The significance mainly comes from R&D firms, which have more growth options than non-R&D firms. By decomposing...

There has been a considerable debate whether disaster models like Barro (2006) can rationalize the equity premium puzzle. This is because empirically disasters are not single extreme events, but tend to be long-lasting periods in which moderate negative consumption growth realizations cluster....

We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to...

We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with...

This paper studies a dynamic stochastic general equilibrium model involving climate change. Our frame- work allows for feedback effects on the temperature dynamics. We are able to match estimates of future temperature distributions provided in the fifth assessment report of the IPCC (2014). We...

We offer evidence of a new stylized feature of corporate financing decisions: the tendency of managers to rely more on debt financing when earnings prospects are poor. We term this 'leaning against the wind' and consider three possible explanations: market timing, precautionary financing, and...

In a calibrated consumption-portfolio model with stock, housing, and labor income predictability, we disentangle the welfare effects of skill and luck. Skilled investors are able to take advantage of all sources of predictability, whereas unskilled investors ignore predictability. Lucky...