I document that dividend growth and returns on the aggregate U.S. stock market are more correlated with consumption growth in bad economic times. In a consumption-based asset pricing model with a generalized disappointment averse investor and small, IID consumption shocks, this feature results...

We study the role of time-varying stock return volatility in a consumption and portfolio choice problem for a life-cycle investor facing short-selling and borrowing constraints. Faced with a benchmark investment strategy that conditions on age and wealth only, we find that an investor is willing...

This paper shows that standard disaster risk models are inconsistent with the behavior of stock market volatility and credit spreads during disasters. We resolve this shortcoming by incorporating persistent macroeconomic crises into a structural credit risk model. The model successfully captures...

Recent empirical evidence suggests that the compensation for rare events accounts for a large fraction of the average equity and variance premia. I replicate this fact in a parsimonious consumption-based asset pricing model based on a (generalized) disappointment averse investor and...

We show empirically that negative stock market returns are significantly more painful to investors when they occur in periods of low volatility, which is reflected in a steeper pricing kernel. In contrast, popular asset pricing theories imply that the pricing of stock market risk does not vary...

We use options and return data to decompose unconditional risk premia into different parts of the return state space. In the data, the entire equity premium is attributable to monthly returns below -11.3%, but returns in the extreme left tail matter very little. In contrast, leading asset...