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Report
Broker-dealer risk appetite and commodity returns
Etula, Erkko (2009-11-01)
This paper shows that the risk-bearing capacity of U.S. securities brokers and dealers is a strong determinant of risk premia in commodity derivatives markets. Commodity derivatives are the principal instrument used by producers and purchasers of commodities to hedge against commodity price risk. Broker-dealers play an important role in this hedging process because commodity derivatives are traded primarily over the counter. I capture the limits of arbitrage in this market in a simple asset pricing model where producers and purchasers of commodities share risk with broker-dealers who are ...
Staff Reports , Paper 406

Working Paper
Consumption and asset prices with recursive preferences: Continuous-time approximations to discrete-time models
Fisher, Mark (1999)
This paper presents tractable and efficient numerical solutions to general equilibrium models of asset prices and consumption where the representative agent has recursive preferences. It provides a discrete-time presentation of the approach of Fisher and Gilles (1999), treating continuous-time representations as approximations to discrete-time "truth." First, exact discrete-time solutions are derived, illustrating the following ideas: (i) The price-dividend ratio (such as the wealth-consumption ratio) is a perpetuity (the canonical infinitely lived asset), the value of which is the sum of ...
FRB Atlanta Working Paper , Paper 99-18

Journal Article
Monetary policy and asset price bubbles
Rudebusch, Glenn D. (2005)
The appropriate monetary policy response to an asset price bubble remains unclear and is one of the most contentious issues currently facing central banks. Some have argued that monetary policy should be used to contain or reduce an asset price bubble in order to alleviate its adverse consequences on the economy, while others have argued that such a policy would be both impractical and unproductive given real-world uncertainties about the nature or even existence of bubbles. This Economic Letter examines how policymakers might choose between alternative courses of action when confronted with ...
FRBSF Economic Letter

Speech
Recessions and recoveries associated with asset-price movements: what do we know? : a speech at the Stanford Institute for Economic Policy Research, Stanford, California, January 12, 2005, and the Real Estate Roundtable, Washington, D.C., January 27, 2005
Ferguson, Roger W. (2005)
Speech , Paper 69

Working Paper
Quantitative asset pricing implications of endogenous solvency constraints
Jermann, Urban J.; Alvarez, Fernando (1999)
The authors study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. The authors present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large equity premia and risk premia for long-term bonds with low risk aversion and a plausibly calibrated income process. The authors characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia.
Working Papers , Paper 99-5

Working Paper
Asymptotic variance approximations for invariant estimators in uncertain asset-pricing models
Robotti, Cesare; Gospodinov, Nikolay; Kan, Raymond (2015-10-01)
This paper derives explicit expressions for the asymptotic variances of the maximum likelihood and continuously updated GMM estimators under potentially misspecified models. The proposed misspecification-robust variance estimators allow the researcher to conduct valid inference on the model parameters even when the model is rejected by the data. Although the results for the maximum likelihood estimator are only applicable to linear asset-pricing models, the asymptotic distribution of the continuously updated GMM estimator is derived for general, possibly nonlinear, models. The large ...
FRB Atlanta Working Paper , Paper 2015-9

Working Paper
Examining macroeconomic models through the lens of asset pricing
Hansen, Lars Peter; Borovicka, Jaroslav (2012)
Dynamic stochastic equilibrium models of the macro economy are designed to match the macro time series including impulse response functions. Since these models aim to be structural, they also have implications for asset pricing. To assess these implications, we explore asset pricing counterparts to impulse response functions. We use the resulting dynamic value decomposition (DVD) methods to quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or compensations that investors must receive because of the exposure to such ...
Working Paper Series , Paper WP-2012-01

Working Paper
Taxes, regulations, and asset prices
Prescott, Edward C.; McGrattan, Ellen R. (2001)
U.S. stock prices have increased much faster than gross domestic product GDP) in the postwar period. Between 1962 and 2000, corporate equity value relative to GDP nearly doubled. In this paper, we determine what standard growth theory says the equity value should be in 1962 and 2000, the two years for which our steady-state assumption is a reasonable one. We find that the actual valuations were close to the theoretical predictions in both years. The reason for the large run-up in equity value relative to GDP is that the average tax rate on dividends fell dramatically between 1962 and 2000. We ...
Working Papers , Paper 610

Working Paper
Implications of heterogeneity in preferences, beliefs and asset trading technologies for the macroeconomy
Cole, Harold L.; Chien, YiLi; Lustig, Hanno (2014-07-14)
This paper analyzes and computes the equilibria of economies with large numbers of heterogeneous agents who have different asset trading technologies, preferences, and beliefs. We illustrate the value of our method by using it to evaluate the implications of these heterogeneities through several quantitative exercises.
Working Papers , Paper 2014-14

Working Paper
What happened to the US stock market? Accounting for the last 50 years
Peralta-Alva, Adrian; Boldrin, Michele (2009)
The extreme volatility of stock market values has been the subject of a large body of literature. Previous research focused on the short run because of a widespread belief that, in the long run, the market reverts to well understood fundamentals. Our work suggests this belief should be questioned as well. First, we show actual dividends cannot account for the secular trends of stock market values. We then consider a more comprehensive measure of capital income. This measure displays large secular fluctuations that roughly coincide with changes in stock market trends. Under perfect foresight, ...
Working Papers , Paper 2009-042

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