Asset pricing in the frequency domain: Theory and empirics

Ian Dew-Becker*, Stefano Giglio

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

41 Scopus citations

Abstract

We quantify investors' preferences over the dynamics of shocks by deriving frequency-specific risk prices that capture the price of risk of consumption fluctuations at each frequency. The frequency-specific risk prices are derived analytically for leading models. The decomposition helps measure the importance of economic fluctuations at different frequencies. We precisely quantify the meaning of "long-run" in the context of Epstein-Zin preferences - centuries - and measure the exact relevance of business-cycle fluctuations. Finally, we estimate frequency-specific risk prices and show that cycles longer than the business cycle - long-run risks - are significantly priced in the equity market.

Original languageEnglish (US)
Pages (from-to)2029-2068
Number of pages40
JournalReview of Financial Studies
Volume29
Issue number8
DOIs
StatePublished - Aug 1 2016

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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