TY  - JOUR
AU  - Bansal,Ravi
AU  - Kiku,Dana
AU  - Yaron,Amir
TI  - An Empirical Evaluation of the Long-Run Risks Model for Asset Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15504
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15504
L1  - http://www.nber.org/papers/w15504.pdf
N1  - Author contact info:
Ravi Bansal
Fuqua School of Business
Duke University
1 Towerview Drive
Durham, NC 27708
Tel: 919/660-7758
Fax: 919/660-8038
E-Mail: ravi.bansal@duke.edu

Dana Kiku
Finance Department
Wharton School
University of Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104-6367
Tel: 215/898-1118
Fax: 215/898-6200
E-Mail: kiku@wharton.upenn.edu

Amir Yaron
The Wharton School
University of Pennsylvania
2256 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6367
Tel: 215/898-1241
Fax: 215/898-6200
E-Mail: yaron@wharton.upenn.edu
AB  - We provide an empirical evaluation of the forward-looking long-run risks (LRR) model and highlight model differences with the backward-looking habit based asset pricing model. We feature three key results: (i) Consistent with the LRR model, there is considerable evidence in the data of time-varying expected consumption growth and volatility, (ii) The LRR model matches the key asset markets data features, (iii) In the data and in the LRR model accordingly, past consumption growth does not predict future asset prices, whereas lagged consumption in the habit model forecasts future price-dividend ratios with an R2 of over 40%. Overall, our evidence implies that the LRR model provides a coherent framework to analyze and interpret asset prices.
ER  -