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Asset Pricing Puzzle: The Long-Run Risks Model's Approach

Author

Listed:
  • Francesca Brusa

    ("Luigi Bocconi" University of Milan)

Abstract

The magnitude of risk compensation in equity markets is an enduring puzzle in the field of the Economics of Finance. Bansal and Yaron (2004) and Bansal, Kiku and Yaron (2007a,b) have recently addressed the topic by picking out the long run growth prospects and the level of economic uncertainty in the economy as the key drivers of risks. Although their “Long-Run Risks” model successfully defines a solid theoretical framework within the ongoing debate, on the empirical side this work reveals the existence of a non-negligible model specification problem that should be addressed by further research.

Suggested Citation

  • Francesca Brusa, 2011. "Asset Pricing Puzzle: The Long-Run Risks Model's Approach," Rivista di Politica Economica, SIPI Spa, issue 4, pages 101-137, October-D.
    • Handle: RePEc:rpo:ripoec:y:2011:i:4:p:101-137
    as

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    More about this item

    Keywords

    asset pricing; long-run risks; equity premium; Monte Carlo;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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