NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk Price Dynamics

Jaroslav Borovička, Lars Peter Hansen, Mark Hendricks, José A. Scheinkman

NBER Working Paper No. 15506
Issued in November 2009
NBER Program(s):   AP

We present a novel approach to depicting asset pricing dynamics by characterizing shock exposures and prices for alternative investment horizons. We quantify the shock exposures in terms of elasticities that measure the impact of a current shock on future cash-flow growth. The elasticities are designed to accommodate nonlinearities in the stochastic evolution modeled as a Markov process. Stochastic growth in the underlying macroeconomy and stochastic discounting in the representation of asset values are central ingredients in our investigation. We provide elasticity calculations in a series of examples featuring consumption externalities, recursive utility, and jump risk.

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Document Object Identifier (DOI): 10.3386/w15506

Published: Jaroslav Borovička & Mark Hendricks & José A. Scheinkman, 2011. "Risk-Price Dynamics," Journal of Financial Econometrics, Oxford University Press, vol. 9(1), pages 3-65, Winter. citation courtesy of

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