Long-Run Risk Is the Worst-Case Scenario

• 成果类型: Article
• 署名作者: Bidder, Rhys; Dew-Becker, Ian
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - San Francisco; Northwestern University
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20150585
• 发表日期: 2016
• 页码: 2494-2527
• 关键词: DISTRIBUTED LAG ESTIMATION; recursive multiple-priors; equity premium; asset prices; general equilibrium; ambiguity aversion; returns; MODEL; utility; substitution

摘要

We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even know what order model to estimate. She estimates her consumption process nonparametrically-allowing potentially - infinite-order dynamics-and prices assets using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility. The equilibrium is exactly solvable and the pricing model always includes long-run risks. With risk aversion of 4.7, the model matches major facts about asset prices, consumption, and dividends. The paper provides a novel link between ambiguity aversion and - nonparametric estimation.