Is Consumption Growth merely a Sideshow in Asset Pricing?

Maurer, Thomas Andreas

doi:10.2139/ssrn.2046168

Cited by 12 publications

(16 citation statements)

References 63 publications

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“…Finally, in independent work, contemporaneous with our own, Maurer (2012) explores the impact of time-preference shocks in a calibrated continuous-time representative agent model with Du¢e-Epstein (1992) preferences. 4 Our paper is organized as follows.…”

Section: Introductionmentioning

confidence: 99%

Valuation Risk and Asset Pricing

et al. 2014

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Standard representative-agent models have di¢culty in accounting for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing underlies virtually all modern asset-pricing puzzles. The correlation puzzle arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.J.E.L. Classification: G12.

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Section: Introductionmentioning

confidence: 99%

Valuation Risk and Asset Pricing

et al. 2014

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“…Stockman and Tesar (1995), Pavlova and Rigobon (2007), and Gabaix and Maggiori (2013) Time-preference shocks can also be thought of a simple way of capturing the notion that fluctuations in market sentiment contribute to the volatility of asset prices, as emphasized by authors such as in Barberis, Shleifer, and Vishny (1998) and Dumas, Kurshev and Up-pal (2009). Finally, in independent work, contemporaneous with our own, Maurer (2012) explores the impact of time-preference shocks in a calibrated continuous-time representative agent model with Du¢e-Epstein (1992) preferences. 4 Our paper is organized as follows.…”

Section: Introductionmentioning

confidence: 99%

Valuation Risk and Asset Pricing

Albuquerque¹,

Eichenbaum²,

Rebelo³

2012

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Standard representative-agent models fail to account for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset-pricing puzzles, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.

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“…In standard asset pricing models, uncertainty enters through the supply side of the economy, either through endowment shocks in a Lucas (1978) tree model or productivity shocks in a production economy model. Recently, several papers introduced demand side uncertainty or "valuation risk" as a potential explanation of key asset pricing puzzles (Albuquerque et al, 2016(Albuquerque et al, , 2015Creal and Wu, 2017;Maurer, 2012;Nakata and Tanaka, 2016;Schorfheide et al, 2018). In macroeconomic parlance, valuation risk is typically referred to as a discount factor or time preference shock.…”

Section: Introductionmentioning

confidence: 99%

Informality and bank stability

Liu-Evans

Mitra

2019

Economics Letters

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This paper shows the recent success of valuation risk (time-preference shocks in Epstein-Zin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. When we revise the preferences to satisfy the restriction in a simple asset pricing model, the puzzles resurface. However, when estimating a sequence of Bansal-Yaron long-run risk models, we find valuation risk under the revised specification consistently improves the ability of the models to match asset price and cash-flow dynamics.

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Is Consumption Growth merely a Sideshow in Asset Pricing?

Cited by 12 publications

References 63 publications

Valuation Risk and Asset Pricing

Valuation Risk and Asset Pricing

Valuation Risk and Asset Pricing

Informality and bank stability

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