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737
Consumption strikes back? Measuring long run risk, working paper,
, 2005
"... Abstract We characterize and measure a longrun risk return tradeoff for the valuation of cash flows exposed to fluctuations in macroeconomic growth. This tradeoff features the risk prices of cash flows that are realized far into the future but are reflected in asset values. We apply this analysis ..."
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Cited by 246 (32 self)
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Abstract We characterize and measure a longrun risk return tradeoff for the valuation of cash flows exposed to fluctuations in macroeconomic growth. This tradeoff features the risk prices of cash flows that are realized far into the future but are reflected in asset values. We apply this analysis to a claims on aggregate cash flows, as well as to the cash flows from value and growth portfolios. Based on vector autoregressions, we characterize the dynamic response of cash flows to macroeconomic shocks and document that there are important differences in the longrun responses. We isolate those features of a recursive utility model and the consumption dynamics needed for the long run valuation differences among these portfolios to be sizable. Finally, we show how the resulting measurements vary when we alter the statistical specifications of cash flows and consumption growth.
Variable Rare Disasters: An Exactly Solved Framework for
 Ten Puzzles in Macro Finance, Working Paper, NYU
, 2009
"... This article incorporates a timevarying severity of disasters into the hy ..."
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Cited by 163 (10 self)
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This article incorporates a timevarying severity of disasters into the hy
Stock return predictability: Is it there?
, 2001
"... We ask whether stock returns in France, Germany, Japan ... by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state variables. We find the short ..."
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Cited by 126 (5 self)
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We ask whether stock returns in France, Germany, Japan ... by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state variables. We find the short rate to be the only robust shortrun predictor of excess returns, and find little evidence of excess return predictability by earnings or dividend yields across all countries. There is no evidence of longhorizon return predictability once we account for finite sample influence. Crosscountry predictability is stronger than predictability using local instruments. Finally, dividend and earnings yields predict future cashflow growth
On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach
, 2002
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Macroeconomic conditions and the puzzles of credit spreads and capital structure
, 2008
"... Investors demand high risk premia for defaultable claims, because (i) defaults tend to concentrate in bad times when marginal utility is high; (ii) default losses are high during such times. I build a structural model of financing and default decisions in an economy with businesscycle variations in ..."
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Cited by 105 (13 self)
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Investors demand high risk premia for defaultable claims, because (i) defaults tend to concentrate in bad times when marginal utility is high; (ii) default losses are high during such times. I build a structural model of financing and default decisions in an economy with businesscycle variations in expected growth rates and volatility, which endogenously generate countercyclical comovements in risk prices, default probabilities, and default losses. Credit risk premia in the calibrated model not only can quantitatively account for the high corporate bond yield spreads and low leverage ratios in the data, but have rich implications for firmsâ€™ financing decisions.
Why is longhorizon equity less risky? A durationbased explanation of the value premium, NBER working paper
, 2005
"... We propose a dynamic riskbased model that captures the value premium. Firms are modeled as longlived assets distinguished by the timing of cash flows. The stochastic discount factor is specified so that shocks to aggregate dividends are priced, but shocks to the discount rate are not. The model im ..."
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Cited by 105 (21 self)
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We propose a dynamic riskbased model that captures the value premium. Firms are modeled as longlived assets distinguished by the timing of cash flows. The stochastic discount factor is specified so that shocks to aggregate dividends are priced, but shocks to the discount rate are not. The model implies that growth firms covary more with the discount rate than do value firms, which covary more with cash flows. When calibrated to explain aggregate stock market behavior, the model accounts for the observed value premium, the high Sharpe ratios on value firms, and the poor performance of the CAPM. THIS PAPER PROPOSES A DYNAMIC RISKBASED MODEL that captures both the high expected returns on value stocks relative to growth stocks, and the failure of the capital asset pricing model to explain these expected returns. The value premium, first noted by Graham and Dodd (1934), is the finding that assets with a high ratio of price to fundamentals (growth stocks) have low expected returns relative to assets with a low ratio of price to fundamentals (value stocks). This
The Declining Equity Premium: What Role Does Macroeconomic Risk Play?
 THE REVIEW OF FINANCIAL STUDIES
, 2006
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Agentbased computational finance
 in Handbook of Computational Economics, Agentbased Computational Economics
, 2006
"... This paper surveys research on computational agentbased models used in finance. It will concentrate on models where the use of computational tools is critical in the process of crafting models which give insights into the importance and dynamics of investor heterogeneity in many financial settings. ..."
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Cited by 100 (3 self)
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This paper surveys research on computational agentbased models used in finance. It will concentrate on models where the use of computational tools is critical in the process of crafting models which give insights into the importance and dynamics of investor heterogeneity in many financial settings.
HabitBased Explanation of the Exchange Rate Risk Premium
, 2005
"... This paper presents a fully rational general equilibrium model that produces a timevarying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this twocountry model, agents are characterized by slowmoving external habit preferences derived from Campbell & ..."
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Cited by 87 (5 self)
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This paper presents a fully rational general equilibrium model that produces a timevarying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this twocountry model, agents are characterized by slowmoving external habit preferences derived from Campbell & Cochrane (1999). Endowment shocks are i.i.d and real riskfree rates are timevarying. Agents can trade across countries, but when a unit is shipped, only a fraction of the good arrives to the foreign shore. The model gives a rationale for the U.I.P puzzle: the domestic investor receives a positive exchange rate risk premium when she is more riskaverse than her foreign counterpart. Times of high riskaversion correspond to low interest rates. Thus, the domestic investor receives a positive risk premium when interest rates are lower at home than abroad. The model is both simulated and estimated. The simulation recovers the usual negative coefficient between exchange rate variations and interest rate differentials. When the iceberglike trade cost is taken into account, the exchange rate variance produced is in line with its empirical counterpart. A nonlinear estimation of the model using consumption data leads to reasonable parameters when pricing the foreign excess returns of an American investor.