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In this paper the authors present a generalized LRR model, which allows studying the role of cyclical fluctuations and macroeconomic crises on asset prices and expected returns. The model contains a persistent expected consumption growth component, long-run variation in consumption volatility, and preference for early resolution of uncertainty. To evaluate the role of cyclical risks, they incorporate a cyclical component in consumption growth - this component is stationary in levels. To study financial market crises, they also entertain jumps in consumption growth and volatility.
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