Risk-price dynamics

Jaroslav Borovička, Lars Peter Hansen, Mark Hendricks, José A. Scheinkman

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We present a novel approach to depicting asset-pricing dynamics by characterizing shock exposures and prices for alternative investment horizons. We quantify the shock exposures in terms of elasticities that measure the impact of a current shock on future cash flow growth. The elasticities are designed to accommodate nonlinearities in the stochastic evolution modeled as a Markov process. Stochastic growth in the underlying macroeconomy and stochastic discounting in the representation of asset values are central ingredients in our investigation. We provide elasticity calculations in a series of examples featuring consumption externalities, recursive utility, and jump risk.

    Original languageEnglish (US)
    Article numbernbq030
    Pages (from-to)3-65
    Number of pages63
    JournalJournal of Financial Econometrics
    Volume9
    Issue number1
    DOIs
    StatePublished - Jan 2011

    Keywords

    • Dynamics
    • Elasticities
    • Growth-rate risk
    • Markov process
    • Pricing

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Fingerprint Dive into the research topics of 'Risk-price dynamics'. Together they form a unique fingerprint.

    Cite this