Asset Pricing.

• Position: Program and Working Group Meetings

The NBER's Program on Asset Pricing met at the University of Chicago on March 30. Program Director John H. Cochrane, NBER and University of Chicago, and Nicolae B. Garleanu, NBER and the Wharton School, organized this program:

Ravi Bansal, Duke University; Dana Kiku, University of Pennsylvania; and Amir Yaron, University of Pennsylvania and NBER, "Risks for the Long Run: Estimation and Inference"

Discussant: George M. Constantinides, University of Chicago and NBER

Wei Yang, University of Rochester, "Time-Varying Exposure to Long-Run Consumption Risk"

Discussant: Lars P. Hansen, University of Chicago and NBER

Dimitri Vayanos, London School of Economics and NBER, and Jean-Luc Vila, Merrill Lynch, "A Preferred-Habitat Model of the Term Structure of Interest Rates"

Discussant: Pierre Collin-Dufresne, University of California, Berkeley and NBER

Lorenzo Garlappi, University of Texas, and Hong Yan, University of South Carolina, "Financial Distress and the Cross-Section of Equity Returns"

Discussant: Joao Gomes, University of Pennsylvania

Xavier Gabaix, MIT and NBER, "Linearity-Generating Processes: A Modeling Tool Yielding Closed Forms for Asset Prices"

Discussant: Pietro Veronesi, University of Chicago and NBER

Lubos Pastor and Pietro Veronesi, University of Chicago and NBER, and Lucian Taylor, University of Chicago, "Entrepreneurial Learning, The IPO Decision and the Post-IPO Drop in Firm Profitability"(NBER Working Paper No. 12792)

Discussant: Markus K. Brunnermeier, Princeton University and NBER

Recent work by Bansal and Yaron (2004) on long-run risks suggests that they can account for key features of asset market data. In this paper, Bansal, Kiku, and Yaron develop methods for estimating their equilibrium model by exploiting the asset pricing Euler equations. Using an empirical estimate for the long-run risk component, they demonstrate that the Long-Run Risk Model can indeed capture a rich array of asset returns. The model, at plausible preference estimates, can account for the market as well as the "value" and "size" premium. The researchers show that time averaging effects, that is a mismatch in the sampling and the agent's decision interval, lead to significant biases in the estimates for risk aversion and the elasticity of intertemporal substitution. Their evidence suggests that accounting for these biases is important for interpreting the magnitudes of the preference parameters and the economic implications of the model for asset prices.

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