Downside risks and the cross-section of asset returns

• In an intertemporal equilibrium asset pricing model featuring disappointment aversion and changing macroeconomic uncertainty, we show that besides the market return and market volatility, three disappointment-related factors are also priced: a downstate factor, a market downside factor, and a volatility downside factor. We find that expected returns on various asset classes reflect premiums for bearing undesirable exposures to these factors. The signs of estimated risk premiums are consistent with the theoretical predictions. Our most general, five-factor model is very successful in jointly pricing stock, option, and currency portfolios, and provides considerable improvement over nested specifications previously discussed in the literature. (C) 2018 Elsevier B.V. All rights reserved.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business (hsv//eng)

Nyckelord

Generalized disappointment aversion

Downside risks

Cross-section

generalized disappointment aversion

stock returns

long-run

market

equilibrium

temporal behavior

currency markets

expected returns

consumption data

volatility

prices

Business & Economics

ristie aa

1982

journal of financial economics

v10

p407

Publikations- och innehållstyp

ref (ämneskategori)

art (ämneskategori)