Valuation Risk and Asset PricingRui Albuquerque, Martin S. Eichenbaum, Sergio Rebelo
NBER Working Paper No. 18617 Standard representative-agent models fail to account for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset-pricing puzzles, 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.
Acknowledgments and Disclosures Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w18617 Published: RUI ALBUQUERQUE & MARTIN EICHENBAUM & VICTOR XI LUO & SERGIO REBELO, 2016. "Valuation Risk and Asset Pricing," The Journal of Finance, vol 71(6), pages 2861-2904. citation courtesy of Users who downloaded this paper also downloaded* these:
|

Contact Us