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Book/Printed Material The declining equity premium what role does macroeconomic risk play?

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Title

  • The declining equity premium what role does macroeconomic risk play?

Summary

  • "Aggregate stock prices, relative to virtually any indicator of fundamental value, soared to unprecedented levels in the 1990s. Even today, after the market declines since 2000, they remain well above historical norms. Why? We consider one particular explanation: a fall in macroeconomic risk, or the volatility of the aggregate economy. We estimate a two-state regime switching model for the volatility and mean of consumption growth, and find evidence of a shift to substantially lower consumption volatility at the beginning of the 1990s. We then show that there is a strong and statistically robust correlation between low macroeconomic volatility and high asset prices: the estimated posterior probability of being in a low volatility state explains 30 to 60 percent of the post-war variation in the log price-dividend ratio, depending on the measure of consumption analyzed. Next, we study a rational asset pricing model with regime switches in both the mean and standard deviation of consumption growth, where the probabilities of a regime change are calibrated to match estimates from post-war data. Plausible parameterizations of the model are found to account for a significant fraction of the run-up in asset valuation ratios observed in the late 1990s"--National Bureau of Economic Research web site.

Names

  • Lettau, Martin, 1966-
  • Ludvigson, Sydney C., 1964-
  • Wachter, Jessica
  • National Bureau of Economic Research

Created / Published

  • Cambridge, MA : National Bureau of Economic Research, c2004.

Headings

  • -  Risk--Econometric models
  • -  Stocks--Prices--Econometric models

Notes

  • -  Title from PDF file as viewed on 1/24/2005.
  • -  Includes bibliographical references.
  • -  Also available in print.
  • -  Mode of access: World Wide Web.
  • -  System requirements: Adobe Acrobat Reader.

Call Number/Physical Location

  • HB1

Digital Id

Library of Congress Control Number

  • 2005616165

Access Advisory

  • Unrestricted online access

Online Format

  • image
  • pdf

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Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Lettau, Martin, Sydney C Ludvigson, Jessica Wachter, and National Bureau Of Economic Research. The Declining Equity Premium What Role Does Macroeconomic Risk Play?. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. https://aj.sunback.homes/item/2005616165/.

APA citation style:

Lettau, M., Ludvigson, S. C., Wachter, J. & National Bureau Of Economic Research. (2004) The Declining Equity Premium What Role Does Macroeconomic Risk Play?. Cambridge, MA: National Bureau of Economic Research. [Pdf] Retrieved from the Library of Congress, https://aj.sunback.homes/item/2005616165/.

MLA citation style:

Lettau, Martin, et al. The Declining Equity Premium What Role Does Macroeconomic Risk Play?. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. Retrieved from the Library of Congress, <aj.sunback.homes/item/2005616165/>.