NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Valuation Risk and Asset Pricing

Rui Albuquerque, Martin S. Eichenbaum, Sergio Rebelo

NBER Working Paper No. 18617
Issued in December 2012
NBER Program(s):   AP

Standard representative-agent models have difficulty in accounting for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing underlies virtually all modern asset-pricing puzzles. The correlation puzzle arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.

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:

This paper was revised on June 13, 2014

Acknowledgments and Disclosures

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18617

Users who downloaded this paper also downloaded these:
Carlin, Longstaff, and Matoba w18619 Disagreement and Asset Prices
Barberis w18621 Thirty Years of Prospect Theory in Economics: A Review and Assessment
Nagel w18554 Empirical Cross-Sectional Asset Pricing
Farmer, Nourry, and Venditti w18647 The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World
Gorton and Metrick w18611 Securitization
 
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