NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risks For the Long Run: Estimation with Time Aggregation

Ravi Bansal, Dana Kiku, Amir Yaron

NBER Working Paper No. 18305
Issued in August 2012
NBER Program(s):   AP   EFG   ME

The long-run risks (LRR) asset pricing model emphasizes the role of low-frequency movements in expected growth and economic uncertainty, along with investor preferences for early resolution of uncertainty, as an important economic-channel that determines asset prices. In this paper, we estimate the LRR model. To accomplish this we develop a method that allows us to estimate models with recursive preferences, latent state variables, and time-aggregated data. Time-aggregation makes the decision interval of the agent an important parameter to estimate. We find that time-aggregation can significantly affect parameter estimates and statistical inference. Imposing the pricing restrictions and explicitly accounting for time-aggregation, we show that the estimated LRR model can account for the joint dynamics of aggregate consumption, asset cash flows and prices, including the equity premia, risk-free rate and volatility puzzles.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18305

Users who downloaded this paper also downloaded these:
Bansal, Kiku, Shaliastovich, and Yaron w18104 Volatility, the Macroeconomy and Asset Prices
Taylor w18290 The Great Leveraging
Bansal, Kiku, and Yaron w15504 An Empirical Evaluation of the Long-Run Risks Model for Asset Prices
Beeler and Campbell w14788 The Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment
Campbell and Cochrane w4995 By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
 
Publications
Activities
Meetings
Data
People
About

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

Contact Us