TY  - UNPD
A1  - Branger, Nicole
A1  - Grüning, Patrick
A1  - Kraft, Holger
A1  - Meinerding, Christoph
A1  - Schlag, Christian
T1  - Asset pricing under uncertainty about shock propagation : [version 18 november 2013]
T2  - SAFE working paper series ; No. 34
N2  - We analyze the equilibrium in a two-tree (sector) economy with two regimes. The output of each tree is driven by a jump-diffusion process, and a downward jump in one sector of the economy can (but need not) trigger a shift to a regime where the likelihood of future jumps is generally higher. Furthermore, the true regime is unobservable, so that the representative Epstein-Zin investor has to extract the probability of being in a certain regime from the data. These two channels help us to match the stylized facts of countercyclical and excessive return volatilities and correlations between sectors. Moreover, the model reproduces the predictability of stock returns in the data without generating consumption growth predictability. The uncertainty about the state also reduces the slope of the term structure of equity. We document that heterogeneity between the two sectors with respect to shock propagation risk can lead to highly persistent aggregate price-dividend ratios. Finally, the possibility of jumps in one sector triggering higher overall jump probabilities boosts jump risk premia while uncertainty about the regime is the reason for sizeable diffusive risk premia.
T3  - SAFE working paper - 34 
KW  - General Equilibrium
KW  - Contagion Risk
KW  - Partial Information
KW  - Filtering
KW  - Recursive Utility
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32437
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-324374
IS  - version 18 november 2013
EP  - 62
PB  - SAFE
CY  - Frankfurt am Main
ER  -