TY  - JOUR
AU  - Bekaert,Geert
AU  - Grenadier,Steven R.
TI  - Stock and Bond Pricing in an Affine Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7346
PY  - 1999
Y2  - September 1999
UR  - http://www.nber.org/papers/w7346
L1  - http://www.nber.org/papers/w7346.pdf
N1  - Author contact info:
Geert Bekaert
Graduate School of Business
Columbia University
3022 Broadway, 411 Uris Hall
New York, NY 10027
Tel: 212/854-9156
Fax: 212/662-8474
E-Mail: gb241@columbia.edu

Steven Grenadier
Graduate School of Business
Stanford University
Stanford, CA  94305
Tel: 650/725-0706
Fax: 650/725-6152
E-Mail: sgren@stanford.edu
AB  - This article provides a stochastic valuation framework for bond and stock returns that builds on three different pricing traditions: affine models of the term structure, present-value pricing of equities, and consumption-based asset pricing.  Our model provides a more general application of the affine framework in that both bonds and equities are priced in a consistent fashion.  This pricing consistency implies that term structure variables help price stocks while stock price fundamentals help price the term structure.  We illustrate our model by considering three examples that are similar in spirit to well-known pricing models that fall within our general framework: a Mehra and Prescott (1985) economy, a present value model similar to Campbell and Shiller (1988b), and a model with stochastic risk aversion similar to Campbell and Cochrane (1998).  The empirical performance of our models is explored, with a particular emphasis on return predictability.
ER  -