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Long-run risks and financial markets

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  • Ravi Bansal

Abstract

The recently developed long-run risks asset pricing model shows that concerns about long-run expected growth and time-varying uncertainty (i.e., volatility) about future economic prospects drive asset prices. These two channels of economic risks can account for the risk premia and asset price fluctuations. In addition, the model can empirically account for the cross-sectional differences in asset returns. Hence, the long-run risks model provides a coherent and systematic framework for analyzing financial markets.

Suggested Citation

  • Ravi Bansal, 2007. "Long-run risks and financial markets," Review, Federal Reserve Bank of St. Louis, vol. 89(Jul), pages 283-300.
    • Handle: RePEc:fip:fedlrv:y:2007:i:jul:p:283-300:n:v.89no.4
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    More about this item

    Keywords

    Financial markets; Risk;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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