TY  - JOUR
AU  - Alvarez,Fernando
AU  - Jermann,Urban J.
TI  - The Size of the Permanent Component of Asset Pricing Kernels
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8360
PY  - 2001
Y2  - July 2001
UR  - http://www.nber.org/papers/w8360
L1  - http://www.nber.org/papers/w8360.pdf
N1  - Author contact info:
Fernando E. Alvarez
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-4412
Fax: 773/702-8490
E-Mail: f-alvarez1@uchicago.edu

Urban Jermann
Finance Department
Wharton School of the University of Pennsylvania
3620 Locust Walk
Philadelphia, PA  19104
Tel: 215/898-4184
Fax: 215/898-6200
E-Mail: jermann@wharton.upenn.edu
AB  - We derive a lower bound for the size of the permanent component of asset pricing kernels. The bound is based on return properties of long-term zero-coupon bonds, risk-free bonds, and other risky securities. We find the permanent component of the pricing kernel to be very large; its volatility is about 100% of the volatility of the stochastic discount factor. This result implies that, if the pricing kernel is a function of consumption, innovations to consumption need to have permanent effects.
ER  -