The Market Cost of Business Cycle Fluctuations

Published Online:https://doi.org/10.1287/mnsc.2023.00484

References

  • Almeida C, Garcia R (2012) Assessing misspecified asset pricing models with empirical likelihood estimators. J. Econom. 170(2):519–537.CrossrefGoogle Scholar
  • Almeida C, Garcia R (2016) Economic implications of nonlinear pricing kernels. Management Sci. 63(10):3147–3529.Google Scholar
  • Almeida C, Ardison K, Garcia R (2019) Nonparametric assessment of hedge fund performance. J. Econometrics.Google Scholar
  • Alvarez F, Jermann UJ (2004) Using asset prices to measure the cost of business cycles. J. Political Econom. 112(6):1223–1256.CrossrefGoogle Scholar
  • Atkeson A, Phelan C (1994) Reconsidering the costs of business cycles with incomplete markets. NBER Macroeconom. Ann. 187–207.CrossrefGoogle Scholar
  • Backus D, Chernov M, Zin SE (2013) Sources of entropy in representative agent models. J. Finance.Google Scholar
  • Bai H, Zhang L (2020) Searching for the equity premium. NBER Working Paper No. 28001, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  • Bansal R, Yaron A (2004) Risks for the long run: A potential resolution of asset pricing puzzles. J. Finance 59(4):1481–1509.CrossrefGoogle Scholar
  • Bansal R, Miller S, Song D, Yaron A (2021) The term structure of equity risk premia. J. Financial Econom. 142(3):1209–1228.CrossrefGoogle Scholar
  • Barlevy G (2004) The cost of business cycles under endogenous growth. Amer. Econom. Rev. 94(4):964–990.CrossrefGoogle Scholar
  • Barlevy G (2005) The cost of business cycles and the benefits of stabilization. Econom. Perspectives Federal Reserve Bank Chicago Q(I):32–49.Google Scholar
  • Barro RJ (2005) Rare events and the equity premium. NBER Working Paper No. 11310, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  • Barro RJ (2006) Rare disasters and asset markets in the twentieth century. Quart. J. Econom. 121(3):823–866.CrossrefGoogle Scholar
  • Barro RJ (2009) Rare disasters, asset prices, and welfare costs. Amer. Econom. Rev. 99(1):243–264.CrossrefGoogle Scholar
  • Basak S, Yan H (2010) Equilibrium asset prices and investor behaviour in the presence of money illusion. Rev. Econom. Stud. 77(3):914–936.CrossrefGoogle Scholar
  • Beaudry P, Pages C (2001) The cost of business cycles and the stabilization value of unemployment insurance. Eur. Econom. Rev. 45:1545–1572.CrossrefGoogle Scholar
  • Blanchard OJ (2019) Public debt and low interest rates. Amer. Econom. Rev. 109(4):1197–1229.Google Scholar
  • Borovicka J, Hansen LP, Scheinkman JA (2016) Misspecified recovery. J. Finance 71(6):2493–2544.CrossrefGoogle Scholar
  • Brown DE, Smith RL (1990) A correspondence principle for relative entropy minimization. Naval Res. Logist. 37(2):191–202.CrossrefGoogle Scholar
  • Bryzgalova S, Huang J, Julliard C (2024a) Consumption in asset returns. Preprint, submitted March 12, http://dx.doi.org/10.2139/ssrn.3783070.Google Scholar
  • Bryzgalova S, Huang J, Julliard C (2024b) Macro strikes back: Term structure of risk premia and market segmentation. (December), https://www.aeaweb.org/conference/2026/program/paper/nz9EF6bN.Google Scholar
  • Campbell JY, Cochrane JH (1999) By force of habit: A consumption-based explanation of aggregate stock market behavior. J. Political Econom. 107(2):205–251.CrossrefGoogle Scholar
  • Chen X, Hansen LP, Hansen PG (2020) Robust identification of investor beliefs. Proc. Natl. Acad. Sci. USA 117:33130–33140.Google Scholar
  • Chernov M, Lochstoer LA, Lundeby SRH (2021) Conditional dynamics and the multihorizon risk-return trade-off. Rev. Financial Stud. 35(3):1310–1347.CrossrefGoogle Scholar
  • Constantinides GM, Duffie D (1996) Asset pricing with heterogeneous consumers. J. Political Econom. 104(2):219–240.CrossrefGoogle Scholar
  • Constantinides GM, Ghosh A (2017) Asset pricing with countercyclical household consumption risk. J. Finance 72(1):415–460.CrossrefGoogle Scholar
  • Csiszár I (1975) I-divergence geometry of probability distributions and minimization problems. Ann. Probabilities 3:146–158.Google Scholar
  • Davis J, Segal G (2020) Trendy business cycles and asset prices. Working Paper No. 4211721, University of North Carolina, Chapel Hill.Google Scholar
  • Dolmas J (1998) Risk preferences and the welfare cost of business cycles. Rev. Econom. Dynamics 1:646–676.CrossrefGoogle Scholar
  • Epstein LG, Zin SE (1989) Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework. Econometrica 57:937–968.CrossrefGoogle Scholar
  • Epstein LG, Farhi E, Strzalecki T (2014) How much would you pay to resolve long-run risk? Amer. Econom. Rev. 104(9):2680–2697.CrossrefGoogle Scholar
  • Ghosh A, Otsu T (2026) Properties of subjective beliefs estimators. Rev. Finance Forthcoming.Google Scholar
  • Ghosh A, Roussellet G (2019) Identifying beliefs from asset prices. Working paper, McGill University, Quebec.Google Scholar
  • Ghosh A, Julliard C, Taylor A (2017) What is the consumption-CAPM missing? An information-theoretic framework for the analysis of asset pricing models. Rev. Financial Stud. 30(2):442–504.CrossrefGoogle Scholar
  • Ghosh A, Julliard C, Taylor A (2022) An information-based one-factor asset pricing model. Working paper, London School of Economics and Political Science, LSE Library, London.Google Scholar
  • Hamilton JD (2018) Why you should never use the Hodrick-Prescott filter. Rev. Econom. Statist. 100.CrossrefGoogle Scholar
  • Hansen LP (2014) Nobel lecture: Uncertainty outside and inside economic models. J. Political Econom. 122(5):945–987.CrossrefGoogle Scholar
  • Hansen LP, Jagannathan R (1991) Implications of security market data for models of dynamic economies. J. Political Econom. 99(2):225–262.CrossrefGoogle Scholar
  • Hansen LP, Jagannathan R (1997) Asssessing specification errors in stochastic discount factor models. J. Finance 52:557–590.CrossrefGoogle Scholar
  • Hansen LP, Sargent TJ (2010) Fragile beliefs and the price of uncertainty. Quant. Econom. 1(1):129–162.CrossrefGoogle Scholar
  • Hansen LP, Singleton KJ (1983) Stochastic consumption, risk aversion, and the temporal behavior of asset returns. J. Political Econom. 91:249–268.CrossrefGoogle Scholar
  • Hansen L, Sargent T, Tallarini T (1999) Robust permanent income and pricing. Rev. Econom. Stud. 66(4):873–907.CrossrefGoogle Scholar
  • Hou K, Xue C, Zhang L (2014) Digesting anomalies: An investment approach. Rev. Financial Stud. 28(3):650–705.CrossrefGoogle Scholar
  • Imrohoroglu A (1989) Cost of business cycles with indivisibilities and liquidity constraints. J. Political Econom. 97(6):1364–1383.CrossrefGoogle Scholar
  • Julliard C, Ghosh A (2012) Can rare events explain the equity premium puzzle? Rev. Financial Stud. 25(10):3037–3076.CrossrefGoogle Scholar
  • Kitamura Y (2006) Empirical likelihood methods in econometrics: Theory and practice. Cowles Foundation Discussion Paper No. 1569, Cowles Foundation, Yale University, New Haven, CT.Google Scholar
  • Kitamura Y, Stutzer M (1997) An information-theoretic alternative to generalized method of moments estimation. Econometrica 65(4):861–874.CrossrefGoogle Scholar
  • Kitamura Y, Tripathi G, Ahn H (2004) Empirical likelihood-based inference in conditional moment restriction models. Econometrica 72(6):1667–1714.CrossrefGoogle Scholar
  • Krebs T (2007) Job displacement risk and the cost of business cycles. Amer. Econom. Rev. 97:664–686.CrossrefGoogle Scholar
  • Krusell P, Smith AA (2009) Revisiting the welfare effects of eliminating business cycles. Rev. Econom. Dynamics 12(3):393–404.CrossrefGoogle Scholar
  • Lettau M, Ludvigson S (2001) Consumption, aggregate wealth, and expected stock returns. J. Finance 56(3):815–849.CrossrefGoogle Scholar
  • Liew J, Vassalou M (2000) Can book-to-market, size and momentum be risk factors that predict economic growth? J. Financial Econom. 57:221–245.CrossrefGoogle Scholar
  • Lucas RE (1987) Models of Business Cycles (Blackwell, Oxford, UK).Google Scholar
  • Lustig HN, Nieuwerburgh SGV (2005) Housing collateral, consumption insurance, and risk premia: An empirical perspective. J. Finance 60(3):1167–1219.CrossrefGoogle Scholar
  • Lustig HN, Nieuwerburgh SGV, Verdelhan A (2013) The wealth-consumption ratio. Rev. Asset Pricing Stud. 3(1):38–94.CrossrefGoogle Scholar
  • Martin I (2008) Disasters and the welfare cost of uncertainty. Amer. Econom. Rev. 98(2):74–78.‌Google Scholar
  • Mehra R, Prescott EC (1985) The equity premium: A puzzle. J. Monetary Econom. 15(2):145–161.CrossrefGoogle Scholar
  • Menzly L, Santos T, Veronesi P (2004) Understanding predictability. J. Political Econom. 112(1):1–47.CrossrefGoogle Scholar
  • Obstfeld M (1994) Evaluating risky consumption paths: The role of intertemporal substitutability. Eur. Econom. Rev. 38(7):1471–1486.CrossrefGoogle Scholar
  • Otrok C (2001) On measuring the welfare cost of business cycles. J. Monetary Econom. 47(1):61–92.CrossrefGoogle Scholar
  • Owen AB (2001) Empirical Likelihood (Chapman and Hall, New York).CrossrefGoogle Scholar
  • Parker JA (2001) The consumption risk of the stock market. Brookings Pap. Econom. Act 2001(2):279–333.CrossrefGoogle Scholar
  • Parker JA, Julliard C (2003) Consumption risk and cross-sectional returns. NBER Working Paper No. 9538, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  • Parker JA, Julliard C (2005) Consumption risk and the cross-section of expected returns. J. Political Econom. 113(1).CrossrefGoogle Scholar
  • Pemberton J (1996) Growth trends, cyclical fluctuations, and welfare with non-expected utility preferences. Econom. Lett. 50(3):387–392.CrossrefGoogle Scholar
  • Piazzesi M, Schneider M (2007) Equilibrium yield curves. N.B.E.R. Macroeconomics Annual 2006, vol. 21 (MIT Press, Cambridge, MA).Google Scholar
  • Piazzesi M, Schneider M, Tuzel S (2007) Housing, consumption and asset pricing. J. Financial Econom. 83(3):531–569.CrossrefGoogle Scholar
  • Ravn MO, Uhlig H (2002) On adjusting the Hodrick-Prescott filter for the frequency of observations. Rev. Econom. Statist. 84(2):371–375.CrossrefGoogle Scholar
  • Sandulescu M, Trojani F, Vedolin A (2018) Model-free international stochastic discount factors. Working paper, Boston University, Boston, MA.Google Scholar
  • Schennach SM (2005) Bayesian exponentially tilted empirical likelihood. Biometrika 92(1):31–46.CrossrefGoogle Scholar
  • Storesletten K, Telmer CI, Yaron A (2001) The welfare cost of business cycles revisited: Finite lives and cyclical variation in idiosyncratic risk. Eur. Econom. Rev. 45(7):1311–1339.CrossrefGoogle Scholar
  • Stutzer M (1995) A Bayesian approach to diagnosis of asset pricing models. J. Econom. 68(2):367–397.CrossrefGoogle Scholar
  • Stutzer M (1996) A simple nonparametric approach to derivative security valuation. J. Finance LI(5):1633–1652.CrossrefGoogle Scholar
  • Tallarini T (2000) Risk sensitive real business cycles. J. Monetary Econom. 45(3):507–532.CrossrefGoogle Scholar
  • van Binsbergen JH, Koijen RS (2017) The term structure of returns: Facts and theory. J. Financial Econom. 124(1):1–21.CrossrefGoogle Scholar
  • Wachter J (2013) Can time-varying risk of rare disasters explain aggregate stock market volatility? J. Finance 68(3):987–1035.CrossrefGoogle Scholar
  • Yogo M (2006) A consumption-based explanation of expected stock returns. J. Finance 61(2):539–580.CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.