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Stocks, Bonds, and Long-Run Consumption Risks

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  • Hasseltoft, Henrik

Abstract

I evaluate whether the so-called long-run risk framework can jointly explain key features of both equity and bond markets as well as the interaction between asset prices and the macroeconomy. I find that shocks to expected consumption growth and time-varying macroeconomic volatility can account for the level of risk premia and its variation over time in both markets. The results suggest a common set of macroeconomic risk factors operating in equity and bond markets. I estimate the model using a simulation estimator that accounts for time aggregation of consumption growth and utilizes a rich set of moment conditions.

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  • Hasseltoft, Henrik, 2012. "Stocks, Bonds, and Long-Run Consumption Risks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(2), pages 309-332, April.
    • Handle: RePEc:cup:jfinqa:v:47:y:2012:i:02:p:309-332_00
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