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Long-Run Risks and Financial Markets

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13196.

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Date of creation: Jun 2007
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Publication status: published as Ravi Bansal, 2007. "Long-run risks and financial markets," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 283-300.
Handle: RePEc:nbr:nberwo:13196

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Cited by:
  1. Zhiguang (Gerald) Wang & Prasad V. Bidarkota, 2010. "A Long-Run Risks Model of Asset Pricing with Fat Tails," Review of Finance, European Finance Association, vol. 14(3), pages 409-449.
  2. Thomas J. Sargent, 2007. "Commentary on "Long-run risks and financial markets"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 301-304.
  3. Shaliastovich, Ivan & Tauchen, George, 2011. "Pricing of the time-change risks," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 843-858, June.
  4. Ferson, Wayne & Nallareddy, Suresh & Xie, Biqin, 2013. "The “out-of-sample” performance of long run risk models," Journal of Financial Economics, Elsevier, vol. 107(3), pages 537-556.
  5. Prasad V. Bidarkota, 2008. "Incomplete Information in a Long Run Risks Model of Asset Pricing," Working Papers 0802, Florida International University, Department of Economics.

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