The Price of Uncertainty in the Term Structure of Equity and Treasury Yields

Category: Finance Brown Bag Seminar
When: 29 November 2023
, 14:00
 - 15:00
Where: HoF E.20 (DZ Bank)
Speaker: Fabio Girardi (Goethe University)

Abstract: I propose a consumption-based asset pricing model in which the decision maker prices stochastic cash flows realized at different future horizons and exposed to multiple shocks. The decision maker ignores the objective probability generating the data, and she evaluates a set of models that is twisted to include structured parametric alternatives. I measure how the market price of uncertainty (mpu) contributes to the short and long-run payoff valuations. My state-space includes macroeconomic and aggregate financial variables and I quantity how each state contributes to the time-varying mpu in the term structure of U.S. Treasury yields and equity yields on the aggregate S&P 500 index for maturities up to 30 years. My analysis replicates prominent features of the data for both asset classes.