Year: 2016
Type: article
Abstract: We provide new estimates of the importance of growth-rate shocks and uncertainty shocks for developed countries. The shocks we estimate are large and correspond to well-known macroeconomic episodes such as the Great Moderation and the productivity slowdown. We compare our results to earlier estimates of “ long-run risks” and assess the implications for asset pricing. Our estimates yield greater return predictability and a more volatile price-dividend ratio. In addition, we can explain a substantial fraction of cross-country variation in the equity premium. An advantage of our approach, based on macroeconomic data alone, is that the parameter estimates cannot be viewed as backward engineered to fit asset pricing data. We provide intuition for our results using the recently developed framework of shock-exposure and shock-price elasticities. (JEL E21, E32, E44, G12, G35)
DOI: 10.1257/mac.20150250
Authors: Emi Nakamura, Dmitriy Sergeyev, Jón Steinsson
Institutions: Columbia University, Bocconi University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W1518227723