The large spread between equity returns and risk-free rates (the "equity premium puzzle") has been the subject of intense debate. Two main families of models claim to solve this puzzle: habit-formation models and loss-aversion models. The goal of this paper is to assess empirically which of them...

Many consumption-based models succeed in matching long lists of asset price moments. We propose an alternative, full-information Bayesian evaluation that decomposes the price-dividend ratio (p/d) into contributions from long-run risks, habit, and a residual. We find that long-run risks account...

This paper estimates and tests the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005, 2009) based on stock market data. We introduce a novel methodology to estimate the conditional expectation which characterizes the impact of a decision maker's ambiguity attitude on asset...

This paper evaluates the central insight of the Consumption Capital Asset Pricing Model (CCAPM) that an asset's expected return is determined by its equilibrium risk to consumption. Rather than measure the risk of a portfolio by the contemporaneous covariance of its return and consumption growth...

A good description of the dynamics of interest rates is crucial to price derivatives and to hedge corresponding risk. Interest rate modelling in an unstable macroeconomic context motivates one factor models with time varying parameters. In this paper, the local parameter approach is introduced...