Risks For the Long Run: Estimation with Time Aggregation / Ravi Bansal, Dana Kiku, Amir Yaron.

Format:

Book

Author/Creator:

Bansal, Ravi.

Contributor:

National Bureau of Economic Research.

Kiku, Dana.

Yaron, Amir.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18305.

NBER working paper series no. w18305

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Risks for the Long Run

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

The long-run risks (LRR) asset pricing model emphasizes the role of low-frequency movements in expected growth and economic uncertainty, along with investor preferences for early resolution of uncertainty, as an important economic-channel that determines asset prices. In this paper, we estimate the LRR model. To accomplish this we develop a method that allows us to estimate models with recursive preferences, latent state variables, and time-aggregated data. Time-aggregation makes the decision interval of the agent an important parameter to estimate. We find that time-aggregation can significantly affect parameter estimates and statistical inference. Imposing the pricing restrictions and explicitly accounting for time-aggregation, we show that the estimated LRR model can account for the joint dynamics of aggregate consumption, asset cash flows and prices, including the equity premia, risk-free rate and volatility puzzles.

Notes:

Print version record

August 2012.