The long-run risks model and aggregate asset prices : an empirical assessment / Jason Beeler, John Y. Campbell.
Material type: TextSeries: Working paper series (National Bureau of Economic Research) ; no. 14788.Publication details: Cambridge, Mass. : National Bureau of Economic Research, 2009Description: 31, 15, 4 p. : ill. ; 22 cmSubject(s): Stocks -- Prices -- Econometric models | Consumption (Economics) -- Econometric modelsLOC classification: HB1 | .N38 no. 14788Online resources: Click here to access online Summary: The long-run risks model of asset prices explains stock price variation as a response to persistent fluctuations in the mean and volatility of aggregate consumption growth, by a representative agent with a high elasticity of intertemporal substitution. This paper documents several empirical difficulties for the model as calibrated by Bansal and Yaron (BY, 2004) and Bansal, Kiku, and Yaron (BKY, 2007a). BY's calibration counterfactually implies that long-run consumption and dividend growth should be highly persistent and predictable from stock prices. BKY's calibration does better in this respect by greatly increasing the persistence of volatility fluctuations and their impact on stock prices. This calibration fits the predictive power of stock prices for future consumption volatility, but implies much greater predictive power of stock prices for future stock return volatility than is found in the data. Neither calibration can explain why movements in real interest rates do not generate strong predictable movements in consumption growth. Finally, the long-run risks model implies extremely low yields and negative term premia on inflation-indexed bonds.Item type | Current library | Collection | Call number | Copy number | Status | Date due | Barcode |
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Book | University of Macedonia Library Βιβλιοστάσιο Β (Stack Room B) | Research Papers | HB1.N38 no. 14788 (Browse shelf (Opens below)) | 1 | Available | 0013125777 |
Includes bibliographical references.
The long-run risks model of asset prices explains stock price variation as a response to persistent fluctuations in the mean and volatility of aggregate consumption growth, by a representative agent with a high elasticity of intertemporal substitution. This paper documents several empirical difficulties for the model as calibrated by Bansal and Yaron (BY, 2004) and Bansal, Kiku, and Yaron (BKY, 2007a). BY's calibration counterfactually implies that long-run consumption and dividend growth should be highly persistent and predictable from stock prices. BKY's calibration does better in this respect by greatly increasing the persistence of volatility fluctuations and their impact on stock prices. This calibration fits the predictive power of stock prices for future consumption volatility, but implies much greater predictive power of stock prices for future stock return volatility than is found in the data. Neither calibration can explain why movements in real interest rates do not generate strong predictable movements in consumption growth. Finally, the long-run risks model implies extremely low yields and negative term premia on inflation-indexed bonds.
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