Take Action

Home | Faculty & Research Overview | Research

Research Details

Valuation Risk and Asset Pricing, Journal of Finance

Abstract

Standard representative-agent models fail to account for the weak correlation be- tween stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset-pricing puzzles, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.

Type

Article

Author(s)

Sergio Rebelo, Rui Albuquerque, Martin Eichenbaum, Victor Luo

Date Published

2016

Citations

Rebelo, Sergio, Rui Albuquerque, Martin Eichenbaum, and Victor Luo. 2016. Valuation Risk and Asset Pricing. Journal of Finance. 71(6): 2861-2904.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more