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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Asset prices with non-permanent shocks to consumption |
| 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 | 69 |
| Page Range | 152 - 178 |
| Date | 2016 |
| Abstract Text | Most standard asset-pricing models assume that all shocks to consumption are permanent. We relax this assumption and allow also for non-permanent shocks. In our specification, the long-run mean of consumption growth is constant; consumption levels are subject to short-run deviations from their long-run trend. The implications of our model are dramatically different from those obtained in the prior literature. A canonical and parsimonious asset pricing model with CRRA preferences and non-permanent shocks can reproduce the equity premium, high return volatility and return predictability with a coefficient of relative risk aversion below ten. This finding suggests that non-permanent shocks can play an important role in explaining asset pricing puzzles. |
| Digital Object Identifier | 10.1016/j.jedc.2016.05.010 |
| Other Identification Number | merlin-id:14008 |
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