Finance Papers

Document Type

Journal Article

Date of this Version

12-2014

Publication Source

The Journal of Finance

Volume

69

Issue

6

Start Page

2471

Last Page

2511

DOI

10.1111/jofi.12110

Abstract

How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and volatility risks determine risk premia and show that volatility plays a significant role in explaining the joint dynamics of returns to human capital and equity. Volatility risk carries a sizable positive risk premium and helps account for the cross section of expected returns. Our evidence demonstrates that volatility is important for understanding expected returns and macroeconomic fluctuations.

Copyright/Permission Statement

This is the peer reviewed version of the following article: BANSAL, R., KIKU, D., SHALIASTOVICH, I. and YARON, A. (2014), Volatility, the Macroeconomy, and Asset Prices. The Journal of Finance, 69: 2471–2511. doi:10.1111/jofi.12110, which has been published in final form at http://dx.doi.org/10.1111/jofi.12110. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms

Embargo Date

11-10-2016

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Date Posted: 27 November 2017

This document has been peer reviewed.