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Working Paper
Limited stock market participation and asset prices in a dynamic economy
Guo, Hui (2003)
We present a consumption-based model that explains the equity premium puzzle through two channels. First, because of borrowing constraints, the shareholder cannot completely diversify his income risk and requires a sizable risk premium on stocks. Second, because of limited stock market participation, the precautionary saving demand lowers the risk-free rate but not stock return and generates a substantial liquidity premium. Our model also replicates many other salient features of the data, including the first two moments of the risk-free rate, excess stock volatility, stock return ...
Working Papers , Paper 2000-031

Working Paper
Pre-announcement effects, news, and volatility: monetary policy and the stock market
Bomfim, Antúlio N. (2000)
I examine pre-announcement and news effects on the stock market in the context of public disclosure of monetary policy decisions. The results suggest that the stock market tends to be relatively quiet--conditional volatility is abnormally low--on days preceding regularly scheduled policy announcements. Although this calming effect is routinely reported in anecdotal press accounts, it is statistically significant only over the past four to five years, a result that I attribute to changes in the Federal Reserve's disclosure practices in early 1994. The paper also looks at how the actual ...
Finance and Economics Discussion Series , Paper 2000-50

Journal Article
Why should older people invest less in stock than younger people?
Kocherlakota, Narayana R.; Jagannathan, Ravi (1996-07)
Financial planners typically advise people to shift investments away from stocks and toward bonds as they age. The planners commonly justify this advice in three ways. They argue that stocks are less risky over a young person?s long investment horizon, that stocks are often necessary for young people to meet large financial obligations (like college tuition for their children), and that younger people have more years of labor income ahead with which to recover from the potential losses associated with stock ownership. This article uses economic reasoning to evaluate these three different ...
Quarterly Review , Volume 20 , Issue Sum , Pages 11-23

Journal Article
Do international reactions of stock and bond markets reflect macroeconomic fundamentals?
Remolona, Eli M. (1991-10)
Using quarterly data for the United States, Japan, and the United Kingdom, this article investigates the relationship between changes in fundamental economic conditions and the international reactions of stock and bond markets. The author assesses the degree to which the transmission of information about fundamentals prompts the stock or bond markets in different countries to move together.
Quarterly Review , Volume 16 , Issue Aut , Pages 1-13

Journal Article
Consistent margin requirements: are they feasible?
Estrella, Arturo (1988-07)
Quarterly Review , Volume 13 , Issue Sum , Pages 61-79

Working Paper
An empirical examination of the price-dividend relation with dividend management
Ackert, Lucy F.; Hunter, William C. (2000)
Some recent empirical evidence suggests that stock prices are not properly modelled as the present discounted value of expected dividends. In this paper we estimate a present value model of stock price that is capable of explaining the observed long-term trends in stock prices. The model recognizes that firm managers control cash dividend payments. The model estimates indicate that stock price movements may be explained by managerial behavior.
Working Paper Series , Paper WP-00-22

Working Paper
A source of unbiased implied volatility forecasts
Feinstein, Steven P. (1988)
FRB Atlanta Working Paper , Paper 88-9

Journal Article
The declining U.S. equity premium
Jagannathan, Ravi; Scherbina, Anna; McGrattan, Ellen R. (2000-10)
This study demonstrates that the U.S. equity premium has declined significantly during the last three decades. The study calculates the equity premium using a variation of a formula in the classic Gordon stock valuation model. The calculation includes the bond yield, the stock dividend yield, and the expected dividend growth rate, which in this formulation can change over time. The study calculates the premium for several measures of the aggregate U.S. stock portfolio and several assumptions about bond yields and stock dividends and gets basically the same result. The premium averaged about 7 ...
Quarterly Review , Volume 24 , Issue Fall , Pages 3-19

Working Paper
Stock market uncertainty and the relation between stock and bond returns
Sun, Licheng; Stivers, Chris (2002)
The authors examine how the co-movement between daily stock and Treasury bond returns varies with stock market uncertainty. They use the lagged implied volatility from equity index options to provide an objective, observable, and dynamic measure of stock market uncertainty. The authors find that stock and bond returns tend to move substantially together during periods of lower stock market uncertainty. However, stock and bond returns tend to exhibit little relation or even a negative relation during periods of high stock market uncertainty. The authors? findings have implications for ...
FRB Atlanta Working Paper , Paper 2002-3

Report
An empirical analysis of stock and bond market liquidity
Chordia, Tarun; Sarkar, Asani; Subrahmanyam, Avanidhar (2003)
This paper explores liquidity movements in stock and Treasury bond markets over a period of more than 1800 trading days. Cross-market dynamics in liquidity are documented by estimating a vector autoregressive model for liquidity (that is, bid-ask spreads and depth), returns, volatility, and order flow in the stock and bond markets. We find that a shock to quoted spreads in one market affects the spreads in both markets, and that return volatility is an important driver of liquidity. Innovations to stock and bond market liquidity and volatility prove to be significantly correlated, suggesting ...
Staff Reports , Paper 164

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