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Stock and Bond Returns with Moody Investors Author info | Abstract | Publisher info | Download info | Related research | Statistics Bekaert, Geert
Engstrom, Eric
Grenadier, Steve
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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.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
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Date of creation: Nov 2006Date of revision:
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Keywords: countercyclical risk aversion equity premium excess volatility habit persistence return predictability stock-bond return correlation Other versions of this item:
Paper Bekaert, Geert & Engstrom, Eric & Grenadier, Steve, 2004.
"Stock and Bond Returns with Moody Investors ,"
CEPR Discussion Papers
4501, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Geert Bekaert & Eric Engstrom & Steven R. Grenadier, 2006.
"Stock and Bond Returns with Moody Investors ,"
NBER Working Papers
12247, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Find related papers by JEL classification: E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy G12 - Financial Economics - - General Financial Markets - - - Asset Pricing G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports :
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repec:rus:hseeco:94022 is not listed on IDEAS
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Geert Bekaert & Seonghoon Cho & Antonio Moreno, 2005.
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Bekaert, Geert & Cho, Seonghoon & Moreno, Antonio, 2006.
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CEPR Discussion Papers
5956, C.E.P.R. Discussion Papers.
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Bekaert, Geert & Engstrom, Eric & Xing, Yuhang, 2006.
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