Stock and Bond Returns with Moody Investors
Geert Bekaert (),
Eric Engstrom () and
No 5951, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion. In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated. After estimating the parameters of the model by the general method of moments, we investigate a series of classic puzzles of the empirical asset pricing literature. In particular, our model is shown to jointly accommodate the mean and volatility of equity and long term bond risk premia as well as salient features of the nominal short rate, the dividend yield, and the term spread. Also, the model matches the evidence for predictability of excess stock and bond returns. However, the stock-bond return correlation implied by the model is somewhat higher than in the data.
Keywords: countercyclical risk aversion; equity premium; excess volatility; habit persistence; return predictability; stock-bond return correlation (search for similar items in EconPapers)
JEL-codes: E44 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
Journal Article: Stock and bond returns with Moody Investors (2010)
Working Paper: Stock and Bond Returns with Moody Investors (2006)
Working Paper: Stock and Bond Returns with Moody Investors (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:5951
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=5951
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ..
Series data maintained by (). This e-mail address is bad, please contact .