Rational pessimism, rational exuberance, and asset pricing models
By: Ravi Bansal, A. Ronald Gallant, George Tauchen
Contributors: Gallant, Ronald A.; Tauchen, George; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13107; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13107.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "The paper estimates and examines the empirical plausibiltiy of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market.  In one model, the long run risks model of Bansal and Yaron (2004), low frequency movements and time varying uncertainty in aggregate consumption growth are the key channels for understanding asset prices.  In another, as typified by Campbell and Cochrane (1999), habit formation, which generates time-varying risk-aversion and consequently time-variation in risk-premia, is the key channel.  These models are fitted to data using simulation estimators.  Both models are found to fit the data equally well at conventional significance levels, and they can track quite closely a new measure of realized annual volatility.  Further scrutiny using a rich array of diagnostics suggests that the long run risk model is preferred"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/16/2007.

Includes bibliographical references.

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Mode of access: World Wide Web.