The forward- and the equity-premium puzzlestwo symptoms of the same illness?

Resumo

We build a pricing kernel using only US domestic assets data and check whether it accounts for foreign markets stylized facts that escape consumption based models. By interpreting our stochastic discount factor as the projection of a pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets. We address predictability issues associated with the forward premium puzzle by: i) using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations, and; ii) by pricing Lustig and Verdelhan (2007)'s foreign currency portfolios. Our results indicate that the relevant state variables that explain foreign-currency market asset prices are also the driving forces behind U.S. domestic assets behavior.

Ficha do documento

Tipo

Estudo

Ano

2009

Instituição

Fundação Getulio Vargas. Escola de Pós-graduação em Economia

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Não informado

Identificador

oai:repositorio.fgv.br:10438/2723

Temas

EconomiaDesenvolvimento Econômico

Palavras-chave

Equity premium puzzleForward premium puzzleReturn-based pricing kernelEconomiaModelos econométricosDesenvolvimento econômico