The forward- and the equity-premium puzzles: two symptoms of the same illness?


Autoria(s): Matos, Paulo Rogério Faustino; Costa, Carlos Eugênio da; Issler, João Victor
Data(s)

13/05/2008

13/05/2008

01/08/2007

Resumo

In this paper we revisit the relationship between the equity and the forward premium puzzles. We construct return-based stochastic discount factors under very mild assumptions and check whether they price correctly the equity and the foreign currency risk premia. We avoid log-linearizations by using moments restrictions associated with euler equations to test the capacity of our return-based stochastic discount factors to price returns on the relevant assets. Our main finding is that a pricing kernel constructed only using information on American domestic assets accounts for both domestic and international stylized facts that escape consumption based models. In particular, we fail to reject the null hypothesis that the foreign currency risk premium has zero price when the instrument is the own current value of the forward premium.

Identificador

01048910

http://hdl.handle.net/10438/994

Idioma(s)

en_US

Publicador

Fundação Getulio Vargas. Escola de Pós-graduação em Economia

Relação

Ensaios Econômicos;649

Palavras-Chave #Equity Premium Puzzle #Forward Premium Puzzle #Returnbased Pricing Kernel #Kernel, Funções de
Tipo

Working Paper