Information quality and long-run risk: Asset pricing implications

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35 Scopus citations

Abstract

I study the asset pricing implications of the quality of public information about persistent productivity shocks in a general equilibrium model with Kreps-Porteus preferences. Low information quality is associated with a high equity premium, a low volatility of consumption growth, and a low volatility of the risk-free interest rate. The relationship between information quality and the equity premium differs from that in endowment economies. My calibration improves substantially upon the Bansal-Yaron model in terms of the moments of the wealth-consumption ratio and the return on aggregate wealth.

Original languageEnglish (US)
Pages (from-to)1333-1367
Number of pages35
JournalJournal of Finance
Volume65
Issue number4
DOIs
StatePublished - Aug 1 2010

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