Ambiguity and the historical equity premium
This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats uncertainty about the conditional mean of the probability distribution on consumption and dividends in the next period as ambiguous, an ambiguity that is endogenously dynamic, e.g., increasing during recessions. We calibrate ambiguity aversion to match only the first moment of the risk-free rate in data and, importantly, the (conditional) ambiguity to match the uncertainty conditional on the actual history of macroeconomic growth outcomes. The model matches observed asset return dynamics very substantially.
|Date of creation:||May 2011|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00594096|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/ |
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.:
- Fernández-Villaverde, Jesús & Rubio-Ramírez, Juan Francisco, 2010.
"Macroeconomics and Volatility: Data, Models, and Estimation,"
CEPR Discussion Papers
8169, C.E.P.R. Discussion Papers.
- Jesús Fernández-Villaverde & Juan Rubio-Ramírez, 2010. "Macroeconomics and Volatility: Data, Models, and Estimation," NBER Working Papers 16618, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00594096. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.