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A Model For Pricing Stocks and Bonds

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  • Harry Mamaysky

Abstract

This paper develops a tractable, dynamic, arbitrage-free model capable of jointly pricing a cross section of bonds and stocks. The bond pricing portion of the model produces the standard affine term-structure equations. It is then shown that a particular choice of dividend process, characterized by affine dividend yields, leads to stock prices that are exponential affine in the model's state variables. Importantly, the model allows for quite general interdependence between bond and stock prices. The paper also shows that an alternative modeling strate

Suggested Citation

  • Harry Mamaysky, 2002. "A Model For Pricing Stocks and Bonds," Yale School of Management Working Papers ysm279, Yale School of Management, revised 01 Jun 2002.
    • Handle: RePEc:ysm:somwrk:ysm279
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    File URL: http://icfpub.som.yale.edu/publications/2398
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    Cited by:

    1. Corradi, Valentina & Distaso, Walter & Mele, Antonio, 2008. "Macroeconomic determinants of stock market returns, volatility and volatility risk-premia," LSE Research Online Documents on Economics 24436, London School of Economics and Political Science, LSE Library.
    2. Hanousek, Jan & Kocenda, Evzen & Kutan, Ali M., 2009. "The reaction of asset prices to macroeconomic announcements in new EU markets: Evidence from intraday data," Journal of Financial Stability, Elsevier, vol. 5(2), pages 199-219, June.
    3. Longstaff, Francis A. & Piazzesi, Monika, 2004. "Corporate earnings and the equity premium," Journal of Financial Economics, Elsevier, vol. 74(3), pages 401-421, December.
    4. Xavier Gabaix, 2007. "Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices," NBER Working Papers 13430, National Bureau of Economic Research, Inc.
    5. Jan Hanousek & Evžen Kočenda, 2011. "Foreign News and Spillovers in Emerging European Stock Markets," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 170-188, February.
    6. Bruche, Max, 2005. "Estimating structural bond pricing models via simulated maximum likelihood," LSE Research Online Documents on Economics 24647, London School of Economics and Political Science, LSE Library.
    7. Sanjiv R. Das & Rangarajan K. Sundaram, 2007. "An Integrated Model for Hybrid Securities," Management Science, INFORMS, vol. 53(9), pages 1439-1451, September.
    8. Longstaff, Francis & Piazzesi, Monika, 2002. "Corporate Earnings and the Equity Premium," University of California at Los Angeles, Anderson Graduate School of Management qt3qn115m4, Anderson Graduate School of Management, UCLA.

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