The market price of risk and the equity premium: A legacy of the Great Depression?

• 成果类型: Article
• 署名作者: Cogley, Timothy; Sargent, Thomas J.
• 署名单位: University of California System; University of California Davis; New York University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2008.01.006
• 发表日期: 2008
• 页码: 454-476
• 关键词: Asset pricing; learning; market price of risk; Robustness

摘要

By positing learning and a pessimistic initial prior, we build a model that disconnects a representative consumer's subjective attitudes toward risk from the high price of risk that a rational-expectations econometrician would deduce from financial market data. We follow Friedman and Schwartz [1963. A Monetary History of the United States, 1857-1960. Princeton University Press, Princeton, NJ] in hypothesizing that the Great Depression heightened fears of economic instability. We use a robustness calculation to elicit a pessimistic prior for a representative consumer and let him update beliefs via Bayes' law. Learning eventually erases pessimism, but while it persists, pessimism contributes a volatile multiplicative component to the stochastic discount factor that a rational-expectation econometrician would detect. With sufficient initial pessimism, the model generates substantial values for the market price of risk and equity premium and predicts high Sharpe ratios and forecastable excess stock returns. (C) 2008 Elsevier B.V. All rights reserved.