02760cam a22003017 4500001000700000003000500007005001700012008004100029100002100070245012200091260006600213490004200279500002000321520127300341530006101614538007201675538003601747690012901783690008901912690005602001690007402057690011202131700002102243710004202264830007702306856003802383856003702421w19416NBER20170523202643.0170523s2013 mau||||fs|||| 000 0 eng d1 aDew-Becker, Ian.10aAsset Pricing in the Frequency Domainh[electronic resource]:bTheory and Empirics /cIan Dew-Becker, Stefano Giglio. aCambridge, Mass.bNational Bureau of Economic Researchc2013.1 aNBER working paper seriesvno. w19416 aSeptember 2013.3 aIn affine asset pricing models, the innovation to the pricing kernel is a function of innovations to current and expected future values of an economic state variable, for example consumption growth, aggregate market returns, or short-term interest rates. The impulse response of this priced variable to fundamental shocks has a frequency (Fourier) decomposition, which captures the fluctuations induced in the priced variable at different frequencies. We show that the price of risk for a given shock can be represented as a weighted integral over that spectral decomposition. The weight assigned to each frequency then represents the frequency-specific price of risk, and is entirely determined by the preferences of investors. For example, standard Epstein-Zin preferences imply that the weight of the pricing kernel lies almost entirely at extremely low frequencies, most of it on cycles longer than 230 years; internal habit-formation models imply that the weight is shifted to high frequencies. We estimate the frequency-specific risk prices for the equity market, focusing on economically interesting frequencies. Most of the pricing weight falls on low frequencies - corresponding to cycles longer than 8 years - broadly consistent with Epstein-Zin preferences. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aE2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy2Journal of Economic Literature class. 7aE21 - Consumption • Saving • Wealth2Journal of Economic Literature class. 7aG0 - General2Journal of Economic Literature class. 7aG1 - General Financial Markets2Journal of Economic Literature class. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aGiglio, Stefano.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w19416.4 uhttp://www.nber.org/papers/w1941641uhttp://dx.doi.org/10.3386/w19416