English, Article, Journal or magazine article edition: Measuring Time-Varying Economic Fears with Consumption-Based Stochastic Discount Factors Belén Nieto; Gonzalo Rubio

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Bookmark: http://trove.nla.gov.au/version/153953
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Measuring Time-Varying Economic Fears with Consumption-Based Stochastic Discount Factors
Author
  • Belén Nieto
  • Gonzalo Rubio
Physical Description
  • preprint
Notes
  • This paper analyzes empirically the volatility of consumption-based stochastic discount factors as a measure of implicit economic fears by studying its relationship with future economic and stock market cycles. Time-varying economic fears seem to be well captured by the volatility of stochastic discount factors. In particular, the volatility of recursive utility-based stochastic discount factor with contemporaneous growth explains between 9 and 34 percent of future changes in industrial production at short and long horizons respectively. They also explain ex-ante uncertainty and risk aversion. However, future stock market cycles are better explained by a similar stochastic discount factor with long-run consumption growth. This specification of the stochastic discount factor presents higher volatility and lower pricing errors than the specification with contemporaneous consumption growth.
  • Stochastic discount factor, economic fears, distance between probability measures, volatility of stochastic discount factor, consumption
  • RePEc:upf:upfgen:1029
Language
  • English
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