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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Short-run Risk, Business Cycle, and the Value Premium
Organization Unit
Authors
  • Markus Leippold
  • Yunhao He
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Journal of Economic Dynamics and Control
Publisher Elsevier
Geographical Reach international
ISSN 0165-1889
Volume 120
Page Range 103993
Date 2020
Abstract Text We jointly explain the equity and value premium variations in a model with both short-run (SRR) and long-run (LRR) consumption risk. In our empirical analysis, we find that SRR varies with the business cycle, and it has a substantial predictive power for market excess returns and the value premium—both in-sample and out-of-sample. The LRR component also differs significantly from zero, and value stocks have a larger exposure to both LRR and SRR than growth stocks. To explain these patterns in asset returns, we propose an extended LRR model. The model can be solved using log-linear approximations with economically small errors.
Free access at DOI
Official URL https://www.sciencedirect.com/science/article/pii/S0165188920301615
Digital Object Identifier 10.1016/j.jedc.2020.103993
Other Identification Number merlin-id:19800
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