Stock and bond returns with moody investors
By: Geert Bekaert, Eric Engstrom, Steven R. Grenadier.
Contributors: Engstrom, Eric, 1974-; Grenadier, Steven R.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 12247.; Working paper series (National Bureau of Economic Research) -- working paper no. 12247.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 61
Subjects: Rate of return -- Econometric models; Stocks -- Prices -- Econometric models; Bonds -- Prices -- Econometric models
Description: "We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion.  In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated.  After estimating the parameters of the model by the general method of moments, we investigate a series of classic puzzles of the empirical asset pricing literature.  In particular, our model is shown to jointly accommodate the mean and volatility of equity and long term bond risk premia as well as salient features of the nominal short rate, the dividend yield, and the term spread.  Also, the model matches the evidence for predictability of excess stock and bond returns.  However, the stock-bond return correlation implied by the model is somewhat higher than in the data"--National Bureau of Economic Research web site.
Notes: "May 2006."

Includes bibliographical references (p. 31-35).

Also available in PDF from the NBER world wide web site (www.nber.org).