NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Anisha Ghosh

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Working Papers

November 2014Prices, Consumption, and Dividends Over the Business Cycle: A Tale of Two Regimes
with George M. Constantinides: w20678
An economy in which investors know the true model and its parameters and filter the regime probability from aggregate consumption history has been empirically rejected. Hypothesizing that prices partly reflect investorsʼ belief about the regime, we infer beliefs from prices. The model fits well the moments of the market return, risk free rate, and price-dividend ratio. Consistent with the data, it implies higher mean and lower volatility of consumption and dividend growth rates, lower mean and volatility of the market return and equity premium, and higher mean of the price-dividend ratio in the first regime compared with the second one. The probability of recession in a year is 62:5% (23:7%) if the probability of being in the first regime at the beginning of the year is lower (higher) than...
May 2014Asset Pricing with Countercyclical Household Consumption Risk
with George M. Constantinides: w20110
We present evidence that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and play a major role in driving asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences and a single state variable drives the conditional cross-sectional moments of household consumption growth. The estimated model fits well the cross-sectional moments of household consumption growth and the unconditional moments of the risk-free rate, equity premium, market price-dividend ratio, and aggregate dividend and consumption growth. Consistent with empirical evidence, the model-implied risk-free rate and price-dividend ratio are pro-cyclical while the market return has countercyclical mean and variance.
July 2010The Predictability of Returns with Regime Shifts in Consumption and Dividend Growth
with George M. Constantinides: w16183
The predictability of the market return and dividend growth is addressed in an equilibrium model with two regimes. A state variable that drives the conditional means of the aggregate consumption and dividend growth rates follows different time-series processes in the two regimes. In linear predictive regressions over 1930-2009, the market return is predictable by the price-dividend ratio with R2 11.7% if the probability of being in the first regime exceeds 50%; and dividend growth is predictable by the price-dividend ratio with R2 28.3% if the probability of being in the second regime exceeds 50%. The model-implied state variables perform significantly better at predicting the equity, size, and value premia, the aggregate consumption and dividend growth rates, and the variance of the marke...
December 2008Asset Pricing Tests with Long Run Risks in Consumption Growth
with George M. Constantinides: w14543
A novel methodology in testing the long-run risks model of Bansal and Yaron (2004) is presented based on the observation that, under the null, the potentially latent state variables, "long-run risk" and the conditional variance of its innovation, are known a¢ ne functions of the observable market-wide price-dividend ratio and risk free rate. In linear forecasting regressions of consumption growth and returns by the price-dividend ratio and risk free rate, the model implies much higher forecastability than what is observed in the data over 1931 -2009. The co-integrated variant of the model by Bansal, Gallant, and Tauchen (2007), also implies much higher forecastability of returns than what is observed in the data. Finally, we reject the models' implications in jointly pricing the cross-sect...

Published: Rev Asset Pric Stud (2011) 1 (1): 96-136. doi: 10.1093/rapstu/rar004 First published online: October 17, 2011

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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