We develop a two-good asset pricing model with non-housing and housing consumption. Composition risk aversion stemming from the presence of housing consumption is a priced factor which brings about time variation and thus predictability of interest rates and risk premia. The slopes of the term...

I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess...

I study the effects of aversion to risk and ambiguity (uncertainty in the sense of Knight (1921)) on the value of the market portfolio when investors receive public information that they find difficult to link to fundamentals and hence treat as ambiguous. I show that small changes in public...