Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Asset Pricing in the Frequency Domain: Theory and Empirics

Asset Pricing in the Frequency Domain: Theory and Empirics We quantify investors’ preferences over the dynamics of shocks by deriving frequency-specific risk prices that capture the price of risk of consumption fluctuations at each frequency. The frequency-specific risk prices are derived analytically for leading models. The decomposition helps measure the importance of economic fluctuations at different frequencies. We precisely quantify the meaning of “long-run” in the context of Epstein-Zin preferences – centuries – and measure the exact relevance of business-cycle fluctuations. Finally, we estimate frequency-specific risk prices and show that cycles longer than the business cycle – long-run risks – are significantly priced in the equity market.Received January 13, 2015; accepted February 23, 2016 by Editor Leonid Kogan. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Asset Pricing in the Frequency Domain: Theory and Empirics

Loading next page...
 
/lp/oxford-university-press/asset-pricing-in-the-frequency-domain-theory-and-empirics-aB0mXsBtuO

References (0)

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Oxford University Press
Copyright
The Author 2016. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhw027
Publisher site
See Article on Publisher Site

Abstract

We quantify investors’ preferences over the dynamics of shocks by deriving frequency-specific risk prices that capture the price of risk of consumption fluctuations at each frequency. The frequency-specific risk prices are derived analytically for leading models. The decomposition helps measure the importance of economic fluctuations at different frequencies. We precisely quantify the meaning of “long-run” in the context of Epstein-Zin preferences – centuries – and measure the exact relevance of business-cycle fluctuations. Finally, we estimate frequency-specific risk prices and show that cycles longer than the business cycle – long-run risks – are significantly priced in the equity market.Received January 13, 2015; accepted February 23, 2016 by Editor Leonid Kogan.

Journal

The Review of Financial StudiesOxford University Press

Published: Aug 27, 2016

There are no references for this article.