Consumption Strikes Back?: Measuring Long-Run Risk / Lars Peter Hansen, John Heaton, Nan Li.

Format:

Book

Author/Creator:

Hansen, Lars Peter.

Contributor:

National Bureau of Economic Research.

Heaton, John.

Li, Nan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11476.

NBER working paper series no. w11476

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Consumption Strikes Back?

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed to fluctuations in macroeconomic growth. This tradeoff features components of financial cash flows that are only realized far into the future but are still reflected in current asset values. We use the recursive utility model with empirical inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate securities and in portfolios constructed based on the ratio of book equity to market equity. Finally, we explore the resulting measurement challenges and the implied sensitivity to alternative specifications of stochastic growth.

Notes:

Print version record

July 2005.