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Ambiguity and the historical equity premium

Fabrice Collard (), Sujoy Mukerji (), Kevin Sheppard () and Jean-Marc Tallon ()
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Kevin Sheppard: Department of Economics and Oxford-Man Institute of Quantitative Finance - University of Oxford

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats uncertainty about the conditional mean of the probability distribution on consumption and dividends in the next period as ambiguous, an ambiguity that is endogenously dynamic, e.g., increasing during recessions. We calibrate ambiguity aversion to match only the first moment of the risk-free rate in data and, importantly, the (conditional) ambiguity to match the uncertainty conditional on the actual history of macroeconomic growth outcomes. The model matches observed asset return dynamics very substantially

Keywords: Equity premium; ambiguity (search for similar items in EconPapers)
JEL-codes: G12 E21 D81 C63 (search for similar items in EconPapers)
Date: 2011-05, Revised 2012-08
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Related works:
Journal Article: Ambiguity and the historical equity premium (2018) Downloads
Working Paper: Ambiguity and the historical equity premium (2018)
Working Paper: Ambiguity and the Historical Equity Premium (2017)
Working Paper: Ambiguity and the historical equity premium (2017) Downloads
Working Paper: Ambiguity and the historical equity premium (2016) Downloads
Working Paper: Ambiguity and the historical equity premium (2016) Downloads
Working Paper: Ambiguity and the historical equity premium (2015)
Working Paper: Ambiguity and the historical equity premium (2011)
Working Paper: Ambiguity and the historical equity premium (2011) Downloads
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