Risks For the Long Run: Estimation with Time Aggregation

Ravi Bansal, Dana Kiku and Amir Yaron

No 18305, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The long-run risks (LRR) asset pricing model emphasizes the role of low-frequency movements in expected growth and economic uncertainty, along with investor preferences for early resolution of uncertainty, as an important economic-channel that determines asset prices. In this paper, we estimate the LRR model. To accomplish this we develop a method that allows us to estimate models with recursive preferences, latent state variables, and time-aggregated data. Time-aggregation makes the decision interval of the agent an important parameter to estimate. We find that time-aggregation can significantly affect parameter estimates and statistical inference. Imposing the pricing restrictions and explicitly accounting for time-aggregation, we show that the estimated LRR model can account for the joint dynamics of aggregate consumption, asset cash flows and prices, including the equity premia, risk-free rate and volatility puzzles.

JEL-codes: E2 G1 G12 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-mac and nep-upt
Note: AP EFG ME
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Citations: View citations in EconPapers (20)

Published as Ravi Bansal & Dana Kiku & Amir Yaron, 2016. "Risks for the long run: Estimation with time aggregation," Journal of Monetary Economics, vol 82, pages 52-69.

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Journal Article: Risks for the long run: Estimation with time aggregation (2016)
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