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Is the Value Premium a Puzzle
, 2006
"... This paper provides an economic explanation of the value premium, differences in price/dividend ratios of value and growth assets and variancecovariance structure of their realized returns within the longrun risks model of Bansal and Yaron (2004). Consistent with timeseries properties of observed ..."
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Cited by 8 (0 self)
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This paper provides an economic explanation of the value premium, differences in price/dividend ratios of value and growth assets and variancecovariance structure of their realized returns within the longrun risks model of Bansal and Yaron (2004). Consistent with timeseries properties of observed cashflow data, value firms exhibit higher exposure to lowfrequency fluctuations in aggregate consumption than growth firms do. This is the key input that allows the model to justify the magnitude of the historical value premium. Furthermore, heterogeneity in systematic risks across firms helps account for the violation of the CAPM and CCAPM, resolving the puzzle.
Consumption Volatility and the CrossSection of Stock Returns, working paper
"... In this paper, I show that conditional volatility of consumption accounts for differences in risk premia across size and booktomarket sorted portfolios both for short and long horizons. In particular, I find that value stocks pay high average returns because they covary more negatively with change ..."
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Cited by 7 (1 self)
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In this paper, I show that conditional volatility of consumption accounts for differences in risk premia across size and booktomarket sorted portfolios both for short and long horizons. In particular, I find that value stocks pay high average returns because they covary more negatively with changes in consumption volatility than what other stocks do. I argue that consumption volatility risk is relevant for interpreting differences in risk compensation across assets.
How to Reduce Unemployment: Notes on Stability and Dynamics *
"... Abstract In this paper I explore the outofequilibrium dynamic behaviour of the Farmer's (2010d) MENA model. Specifically, assuming that the microeconomic adjustments are instantaneous, I build a dynamic model in continuous time that describes the macroeconomic adjustments of the value of ..."
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Abstract In this paper I explore the outofequilibrium dynamic behaviour of the Farmer's (2010d) MENA model. Specifically, assuming that the microeconomic adjustments are instantaneous, I build a dynamic model in continuous time that describes the macroeconomic adjustments of the value of output and the interest rate. Within this framework, I show that the model economy has a unique stationary solution whose dynamics is locally stable. Moreover, simulating the model economy under the baseline calibration, I show that the adjustments towards the steadystate equilibrium occur through convergent oscillations while the most promising way out from a financial crisis combines a fiscal expansion with interventions aimed at easing the tradeoff between holding risk and riskfree assets. JEL Classification: E12, E32, E62.
Distribution Risk and Equity Returns ∗ JeanPierre Danthine Université de Lausanne, FAME and CEPR
, 1999
"... In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of firstorder importance f ..."
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In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of firstorder importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in nontraded idiosyncratic income shocks. JEL classification: E3; G1
Université de Lausanne,
, 1999
"... In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of firstorder importance f ..."
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In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of firstorder importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in nontraded idiosyncratic income shocks. JEL classification: E3; G1
105 Years of Data from South Africa
"... to an anonymous referee for the Economic Research Southern Africa (ERSA) working paper series; to Nicola Viegi; and to seminar participants at the ERSA/South African Savings Institute conference held at the South African Reserve Bank in August 2009, for helpful comments and suggestions. The authors ..."
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to an anonymous referee for the Economic Research Southern Africa (ERSA) working paper series; to Nicola Viegi; and to seminar participants at the ERSA/South African Savings Institute conference held at the South African Reserve Bank in August 2009, for helpful comments and suggestions. The authors
Measuring TimeVarying Economic Fears with ConsumptionBased Stochastic Discount Factors
"... This paper shows that the volatility of sensible consumptionbased stochastic discount factors predicts future economic and stock market cycles. More specifically, we report a striking change in this forecasting ability which coincides with the structural change in the macroeconomic conditions of th ..."
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This paper shows that the volatility of sensible consumptionbased stochastic discount factors predicts future economic and stock market cycles. More specifically, we report a striking change in this forecasting ability which coincides with the structural change in the macroeconomic conditions of the U.S. economy in 1984. Significant forecasting is found from 1985 to 2006, when the economy is characterized by a period of great macroeconomic moderation and increasing risk aversion in stock market investors simultaneously. In particular, the volatility of contemporaneous consumption growth specifications of recursive and durable preferences predict cycles at horizons of one, two and four quarters, while long run specifications better forecast at eight and twelve quarters. Moreover, the explanatory forecasting ability is stronger at recessions than at expansions.