Interpretable Asset Markets

By Ravi Bansal, Varoujan Khatachtrian, Amir Yaron. 2005

264 citations recorded by the source corpus.

In this paper we show that measures of economic uncertainty (conditional volatility of consumption) predict and are predicted by valuation ratios at long horizons. Further we document that asset valuations drop as economic uncertainty rises that is, financial markets dislike economic uncertainty. Moreover, future earnings growth rates are sharply predicted by current price-earnings ratios. It seems that much of the variation in asset prices can be attributed to fluctuations in economic uncertainty and expected cash-flow growth. This empirical evidence is consistent with the implications of existing parametric general equilibrium models. Hence, the channels of fluctuating economic uncertainty and expected growth seem important for interpreting asset markets.

View Paper: https://www.semanticscholar.org/paper/ed3aa86dcd4700a5f9e554f9c0984a5844f93bf8

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Citations in the corpus

Expected Stock Returns and Variance Risk Premia (2009, unknown): “Empirical evidence in support of time-varying consumption growth volatility has recently been presented by Bekaert and Liu (2004); Bansal, Khatchatrian, and Yaron (2005); Bekaert, Engstrom, and Xing (2008); and Lettau, Ludvigson, and Wachter (2008), among others.”
An Empirical Evaluation of the Long-Run Risks Model for Asset Prices (2009, background): “Bansal, Khatchatrian, and Yaron (2005) document the robustness of the negative relation between consumption volatility and asset price and further conﬁrm that movements in consumption volatility are indeed an important risk channel.”
The Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment (2012, background): “Their long-run risks model has attracted a great deal of attention, with important subsequent work by Bansal, Khatchatrian, and Yaron (2005), Bansal, Kiku, and Yaron (2007, 2010, 2011), Hansen, Heaton, and Li (2008), Bansal, Dittmar, and Kiku (2009), and Bansal and Shaliastovich (2009, 2010) among…”
The interactive relationship between the US economic policy uncertainty and BRIC stock markets (2016, background): “In the existent literature, it is clearly perceived that there is a long-term negative relationship between equity returns and the economic policy uncertainty (see Bansal et al., 2005).”
Risk, uncertainty, and asset prices (2005, unknown): “Hence, the results in Bansal et al. (2005) and Kandel and Stambaugh (1990) regarding the dividend yield predicting economic uncertainty are also valid for dividend growth volatility.”
Expected stock returns and variance risk premia (2007, unknown): “Empirical evidence in support of time-varying consumption growth volatility has recently been presented by Bansal et al. (2005), Bekaert and Liu (2004), Bekaert et al.”
Macro Factors in Bond Risk Premia (2005, background): “Other models of rational, utility-maximizing investors imply that risk premia fluctuate with countercyclical movements in macroeconomic uncertainty (e.g., Bansal and Yaron 2004; Bansal, Khatchatrian, and Yaron 2005 ).”
A Long-Run Risks Explanation of Predictability Puzzles in Bond and Currency Markets (2012, unknown): “The baseline calibration parameter values for consumption dynamics, reported in the first panel of Table 4, are very similar to the ones used in Bansal and Yaron (2004) and Bansal et al. (2007). Specifically, the persistence in the expected consumption growth, on an annual basis, (i.”
The Declining Equity Premium: What Role Does Macroeconomic Risk Play? (2008, unknown): “Bansal and Lundblad (2002), Bansal, Khatchatrian, and Yaron (2005), and Du¤ee (2005) further explore theoretical and empirical links between second moments of consumption growth, equity valuation ratios, and returns.”