Asset pricing and the role of macroeconomic volatility

Stefano d’Addona () and Christos Giannikos
Authors registered in the RePEc Author Service: Stefano d'Addona

Annals of Finance, 2014, vol. 10, issue 2, 197-215

Abstract: Standard Real Business Cycle (RBC) models are well known to generate counter-factual asset pricing implications. This study provides a simple extension to the prior literature by studying an economy that follows a regime-switching process in conjunction with Epstein–Zin preferences for consumers. We provide a detailed theoretical and numerical analysis of the model’s predictions. We also show that a reasonable parameterization of our model conveys financial figures in line with US postwar data. Furthermore, we provide evidence in support of modeling a regime-dependent macroeconomic risk. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Asset pricing; Real Business Cycle Models; Recursive preferences; Markov switching models; G12; E32; E23 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:kap:annfin:v:10:y:2014:i:2:p:197-215

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DOI: 10.1007/s10436-013-0237-2

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