NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Ties Return Volatilities to Price Valuations and Fundamentals?

Alexander David, Pietro Veronesi

NBER Working Paper No. 15563
Issued in December 2009
NBER Program(s):   AP

Stock and Treasury bond comovement, volatilities, and their relations to their price valuations and fundamentals change stochastically over time, both in magnitude and direction. These stochastic changes are explained by a general equilibrium model in which agents learn about composite economic and inflation regimes. We estimate our model using both fundamentals and asset prices, and find that inflation news signal either positive or negative future real economic growth depending on the times, thereby affecting the direction of stock/bond comovement. The learning dynamics generate strong non-linearities between volatilities and price valuations. We find empirical support for numerous predictions of the model.

This paper is not currently available on-line.
No more information is available.

This paper was revised on

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15563

Published: Journal of Political Economy, Summer 2013, 121, 4, 682 - 746

Users who downloaded this paper also downloaded these:
Baele, Bekaert, and Inghelbrecht w15260 The Determinants of Stock and Bond Return Comovements
Pastor and Veronesi w17464 Political Uncertainty and Risk Premia
Pastor and Veronesi w14646 Learning in Financial Markets
David and Veronesi w16764 Investors' and Central Bank's Uncertainty Embedded in Index Options
Bansal, Kiku, and Yaron w15504 An Empirical Evaluation of the Long-Run Risks Model for Asset Prices
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us