Asset pricing in the frequency domain: : Theory and empirics

• Autores: Ian Dew-Becker, Stefano Giglio
• Localización: Review of Financial Studies, ISSN-e 1465-7368, Vol. 29, Nº. 8, 2016, págs. 2029-2068
• Idioma: inglés
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• Resumen

  • We quantify investors’ preferences over the dynamics of shocks by deriving frequency-specific risk prices that capture the price of risk of consumption fluctuations at each frequency. The frequency-specific risk prices are derived analytically for leading models. The decomposition helps measure the importance of economic fluctuations at different frequencies. We precisely quantify the meaning of “long-run” in the context of Epstein-Zin preferences – centuries – and measure the exact relevance of business-cycle fluctuations. Finally, we estimate frequency-specific risk prices and show that cycles longer than the business cycle – long-run risks – are significantly priced in the equity market.