We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate...

The use of futures exchange contracts instead of forwards completes the maturity spectrum of the correlation between the spot yield and the premium. We find that the forward premium puzzle (FFP) depends significantly on the maturity horizon of the futures contract and the choice of sampling...

We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias....

In this paper, we revisit the equity premium puzzle reported in 1985 by Mehra and Prescott. We show that the large equity premium that they report can be explained by choosing a more appropriate distribution for the return data. We demonstrate that the high-risk aversion value observed by Mehra...

We propose a new approach for estimating rare disaster event models where we only use U.S. national consumption data as an alternative to the ubiquitous Barro and Urs´ua’s (2008, 2012) multi-country data set. We find that the 2020 COVID crisis unambiguously reveals the presence and...

This paper studies equilibrium in a pure exchange economy with unobservable Markov switching consumption growth regimes and regime-dependent preferences. Variations in risk attitudes have fundamental effects on the structure of equilibrium. Explicit solutions are provided for the market price of...

In 1995, Benartzi and Thaler introduced the concept myopic loss aversion to explain the equity premium puzzle. They provided empirical evidence to support their arguments. Recently, Durand, et al. criticized this empirical analysis. They propose an approach which not only rejects the...

The general conclusion of a very large literature on the equity premium puzzle is that the simplest version of the consumption-based asset pricing model (C-CAPM) with time-additive, power utility is inconsistent with the data. I show that this conclusion is premature and the simplest version can...

Any time series can be decomposed into cyclical components fluctuating at different frequencies. Accordingly, in this paper we propose a method to forecast the stock market's equity premium which exploits the frequency relationship between the equity premium and several predictor variables. We...

We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey...