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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 |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| 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 |
| Digital Object Identifier | 10.1016/j.jedc.2020.103993 |
| Other Identification Number | merlin-id:19800 |
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