New Shocks And Asset Price Volatility In General Equilibrium
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Author |
: Alessandro Rebucci |
Publisher |
: |
Total Pages |
: 46 |
Release |
: 2011-05-01 |
ISBN-10 |
: OCLC:731915847 |
ISBN-13 |
: |
Rating |
: 4/5 (47 Downloads) |
Synopsis New Shocks and Asset Price Volatility in General Equilibrium by : Alessandro Rebucci
We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. We show that introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions. This is because, in general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks. In addition, we show that neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.
Author |
: |
Publisher |
: |
Total Pages |
: |
Release |
: 2011 |
ISBN-10 |
: OCLC:838682158 |
ISBN-13 |
: |
Rating |
: 4/5 (58 Downloads) |
Synopsis News Shocks and Asset Price Volatility in General Equilibrium by :
Author |
: Juan Carlos Rodriguez |
Publisher |
: |
Total Pages |
: |
Release |
: 2007 |
ISBN-10 |
: OCLC:1291166638 |
ISBN-13 |
: |
Rating |
: 4/5 (38 Downloads) |
Synopsis Consumption, the Persistence of Shocks, and Asset Price Volatility by : Juan Carlos Rodriguez
In a general equilibrium setting, a temporary component in consumption introduces a wedge between the volatility of equity returns and the volatility of consumption growth. This paper explores the asset pricing consequences of this property in a model in which consumption is the sum of a permanent and a transitory component. Permanent shocks are assumed to be rare events, while transitory shocks follow a diffusion process. When calibrated to US annual data, the model matches first and second moments of equity and bond returns for preference parameters within acceptable bounds. Permanent and transitory shocks together explain the equity premium, while transitory shocks alone explain the excess volatility of returns.
Author |
: Akito Matsumoto |
Publisher |
: INTERNATIONAL MONETARY FUND |
Total Pages |
: 36 |
Release |
: 2008-12-01 |
ISBN-10 |
: 1451871422 |
ISBN-13 |
: 9781451871425 |
Rating |
: 4/5 (22 Downloads) |
Synopsis New Shocks, Exchange Rates and EquityPrices by : Akito Matsumoto
We study exchange rate and equity price dynamics, in general equilibrium, in the presence of news shocks about future productivity and monetary policy. We identify a condition under which these asset prices become more volatile without affecting the volatility of the underlying processes-a positive correlation between news and current shocks. This condition also explains why persistent underlying processes generate volatile asset prices. In addition, we show that the correlation between exchange rate and equity returns depends critically on the currency denomination of the equity return and the monetary policy reaction to productivity shocks. The model we set up does well at matching second moments of exchange rate and equity returns for major floating currencies.
Author |
: Fischer Black |
Publisher |
: MIT Press |
Total Pages |
: 340 |
Release |
: 1995 |
ISBN-10 |
: 0262023822 |
ISBN-13 |
: 9780262023825 |
Rating |
: 4/5 (22 Downloads) |
Synopsis Exploring General Equilibrium by : Fischer Black
The general equilibrium approach, Black asserts, can be used to explain most of the economy's behavior. It can explain business cycles and growth without using sticky prices, irrationality, economies of scale, or imperfect competition. It can explain the volatility of consumption, output, sales, investment, and inventories with axiomatic utility and constant-returns-to-scale production. It can explain temporary layoffs, job changes with and without intervening unemployment, and the behavior of vacancies. It can explain lower wages in part-time jobs, wages that increase rapidly with time on the job, and the forces that cause migration from poor to rich countries. Although the general equilibrium approach cannot be tested in conventional ways, it can be used to generate examples that explain stylized facts - generalized observations from the real world - that have preoccupied macroeconomists for the last decade. Black contrasts his interpretation of these facts with conventional views. Finally, he reviews a substantial body of literature on these topics.
Author |
: Edouard Challe |
Publisher |
: |
Total Pages |
: 27 |
Release |
: 2011 |
ISBN-10 |
: OCLC:741672569 |
ISBN-13 |
: |
Rating |
: 4/5 (69 Downloads) |
Synopsis Stock prices and monetary policy shocks : a general equilibrium approach by : Edouard Challe
Author |
: Veronica Guerrieri |
Publisher |
: DIANE Publishing |
Total Pages |
: 39 |
Release |
: 2011 |
ISBN-10 |
: 9781437941371 |
ISBN-13 |
: 1437941370 |
Rating |
: 4/5 (71 Downloads) |
Synopsis Fund Managers, Career Concerns, and Asset Price Volatility by : Veronica Guerrieri
This is a print on demand edition of a hard to find publication. Proposes a general equilibrium model where investors hire fund managers (FM) to invest their capital either in a risky bond or in a riskless asset. There is a small fraction of informed FM with superior info. on the default probability. Looking at the past performance, investors update their beliefs on the info. of their FM and make hiring and firing decisions. This leads to career concerns which affect the investment decision of un-informed FM, generating a ¿reputational premium¿. When the default probability is high enough, un-informed FM prefer to invest in the riskless asset to reduce the probability of being fired. On the contrary, if the probability of default is low enough, investing in the risky bonds has a reputational advantage and the premium is negative.
Author |
: Dimitris Papanikolaou |
Publisher |
: |
Total Pages |
: 47 |
Release |
: 2011 |
ISBN-10 |
: OCLC:1290242735 |
ISBN-13 |
: |
Rating |
: 4/5 (35 Downloads) |
Synopsis Investment Shocks and Asset Prices by : Dimitris Papanikolaou
I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household's marginal utility. These investment shocks generate differences in risk premia due to their heterogenous impact on firms: they benefit firms producing investment relative to firms producing consumption goods, and increase the value of growth opportunities relative to the value of existing assets. Using data on asset returns, I find that a positive investment shock leads to high marginal utility states. A general equilibrium model with investment shocks matches key features of macroeconomic quantities and asset prices.
Author |
: Majid Hasan |
Publisher |
: |
Total Pages |
: 85 |
Release |
: 2017 |
ISBN-10 |
: OCLC:1305500658 |
ISBN-13 |
: |
Rating |
: 4/5 (58 Downloads) |
Synopsis Funding Shortfall Risk and Asset Prices in General Equilibrium by : Majid Hasan
Institutional investors, such as pensions and insurers, are typically constrained to hold enough wealth to be able to make their contractually promised payments to fund beneficiaries. This creates an additional risk in the economy, namely the risk of funding shortfall. We seek to explore the optimal asset allocation strategies for such institutions, the effects of funding shortfall risk on asset prices, and its ability to explain any empirical asset pricing regularities that remain anomalous in the consumption capital asset pricing model (CCAPM). We show that it is the more constrained institutions that matter more for asset prices, and not the ones with the largest assets under management. The constraint introduces two distinct regimes in the economy, characterising unconstrained and constrained regions, with the possibility of transitioning from the constrained to unconstrained regime, leading to regime switching in asset prices. The shadow price of the funding-ratio constraint leads to a nonlinear factor model, which can be interpreted as a linear two-factor model with the second factor is related to funding shortfall risk. The funding shortfall risk increases the conditional equity premium and Sharpe ratio, which evolve counter-cyclically, but decreases the conditional volatility, which evolves cyclically. The constrained institution holds an under-diversified portfolio and simultaneously increases its demand for the riskfree and higher-risk assets relative to lower-risk assets, inducing a bubble-like behaviour in the prices of higher-risk assets. The dynamics of contractually promised payments introduce predictability in the dynamics of conditional moments of asset return distributions. The demand for different maturity bonds, and hence the term structure of riskfree interest rates, is affected by the growth rate of aggregate dividend relative to the growth rate of contractually promised institutional payouts to end-investors. The term structure of interest rates is predominantly upward sloping, but can change shape upon shocks to the growth rate of aggregate dividend, creating a new channel through which the business cycle may affect the term structure of riskfree rates. Implied volatility exhibits a time-varying volatility smile, and the term structure of implied volatility can be both upward or downward sloping, depending on the relative growth rates of aggregate endowment and promised institutional payouts.
Author |
: Frank Hahn |
Publisher |
: Routledge |
Total Pages |
: 398 |
Release |
: 2003-09-02 |
ISBN-10 |
: 9781134433612 |
ISBN-13 |
: 1134433611 |
Rating |
: 4/5 (12 Downloads) |
Synopsis General Equilibrium by : Frank Hahn
In recent years certain leading figures in the world of economics have called the usefulness of general equilibrium theory into question. This superb new book brings together leading economic theorists with important contributions to the ongoing debate. General equilibrium theorists including Michio Morishima, Michael Magill and Martine Quinzii debate strengths, weaknesses and possible futures with leading thinkers such as Herb Gintis, Pierangelo Garegnani and Duncan Foley, who seek to explain the rejection of general equilibrium. Uniquely, none of the contributors portray general equilibrium theory as the perfect guide to market economies actual behaviour, but rather illustrate that there is insufficient acquaintance with existing alternatives and that general equilibrium theory is often used as an ideal 'benchmark'.