Working Paper: NBER ID: w13196
Authors: 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.
Keywords: No keywords provided
JEL Codes: E0; E44; G0; G1; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| longrun expected growth and time-varying uncertainty (D84) | asset prices (G19) |
| current shocks to expected growth (F69) | long-term growth prospects (E66) |
| current shocks to expected growth (F69) | short-term expectations (D84) |
| longrun risks (E44) | risk premia (G22) |
| time-varying consumption volatility (D15) | variations in risk premia (G19) |
| risk aversion and intertemporal elasticity of substitution parameters (D11) | nature of causal links (C10) |
| firms with cash flows tied to economic growth (D25) | higher expected returns (G12) |