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Stocks, bonds, and long-run consumption risks


Hasseltoft, Henrik (2012). Stocks, bonds, and long-run consumption risks. Journal of Financial and Quantitative Analysis, 47(2):309-332.

Abstract

I evaluate whether the so-called long-run risk framework can jointly explain key features of both equity and bond markets as well as the interaction between asset prices and the macroeconomy. I find that shocks to expected consump-
tion growth and time-varying macroeconomic volatility can account for the level of risk premia and its variation over time in both markets. The results suggest a common set of macroeconomic risk factors operating in equity and bond
markets. I estimate the model using a simulation estimator which accounts for time-aggregation of consumption growth and utilizes a rich set of moment conditions.

Abstract

I evaluate whether the so-called long-run risk framework can jointly explain key features of both equity and bond markets as well as the interaction between asset prices and the macroeconomy. I find that shocks to expected consump-
tion growth and time-varying macroeconomic volatility can account for the level of risk premia and its variation over time in both markets. The results suggest a common set of macroeconomic risk factors operating in equity and bond
markets. I estimate the model using a simulation estimator which accounts for time-aggregation of consumption growth and utilizes a rich set of moment conditions.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 April 2012
Deposited On:25 Mar 2011 14:02
Last Modified:26 Mar 2017 05:12
Publisher:Cambridge University Press
ISSN:0022-1090
Additional Information:Copyright: Cambridge University Press
Publisher DOI:https://doi.org/10.1017/S0022109012000075
Official URL:http://www.jfqa.org/
Related URLs:http://depts.washington.edu/jfqa/forthcoming.html (Organisation)

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