Time-varying ambiguity, credit spreads, and the levered equity premium

• 成果类型: Article
• 署名作者: Shi, Zhan
• 署名单位: Tsinghua University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.04.013
• 发表日期: 2019
• 页码: 617-646
• 关键词: Ambiguity; credit spreads; equity premium

摘要

This paper studies the effects of time-varying Knightian uncertainty (ambiguity) on asset pricing in a Lucas exchange economy. Specifically, it considers a general equilibrium model where an ambiguity-averse agent applies a discount rate that is adjusted not only for the current magnitude of ambiguity but also for the risk associated with its future fluctuations. As such, both the ambiguity level and volatility help to raise the asset premiums and accommodate richer dynamics of asset prices. Based on a novel empirical measure of the ambiguity level, the estimated model can capture the empirical levels of corporate credit spreads and the equity premium while endogenously matching the historical default probability. More importantly, the model-implied credit spread and equity price-dividend ratio perform remarkably in tracking the time variations in their historical counterparts. (C) 2019 Elsevier B.V. All rights reserved.