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Session Chair: Julian Thimme, Karlsruhe Institute of Technology
Location:Room "Link"
Presentations
Volatility and the Pricing Kernel
Tobias Sichert1, David Schreindorfer2
1Stockholm School of Economics; 2Arizona State University, United States of America
Discussant: Jens H. E. Christensen (Federal Reserve Bank of San Francisco)
We use options and return data to show that negative stock market returns are significantly more painful to investors when they occur in periods of low volatility. In contrast, popular asset pricing theories imply that the pricing of stock market risk does not vary with volatility, or that it moves in the opposite direction. Our finding suggests that stock market volatility evolves largely independently from the pricing kernel. We embed this assumption into a consumption-based model with a disappointment averse investor. The model captures the dynamics of the pricing kernel and resolves four recent puzzles about stock market risk premia.
When Green Investors Are Green Consumers
Olivier David Zerbib1, Maxime Sauzet2
1EDHEC Business School, France; 2Boston University, United States of America
Discussant: Martin Nerlinger (University of St.Gallen)
We bring investors with preferences for green assets to a general equilibrium setting in which they also prefer consuming green goods. Their preferences for green goods induce consumption premia on expected returns that counterbalance the green premium stemming from their preferences for green assets. Because they provide a hedge when green goods become expensive, brown assets command lower consumption premia, and green investors allocate a larger share of their portfolios towards them. Empirically, the green-minus-brown consumption premia differential reached 30-40 basis points annually, and contributes to explaining the limited impact of green investing on polluting firms’ costs of capital.
Conservative Holdings, Aggressive Trades: Ambiguity, Learning, and Equilibrium Flows
Alex Weissensteiner1, Thomas Dangl3, Lorenzo Garpappi2
1Free University of Bozen-Bolzano, Italy; 2Sauder School of Business - University of British Columbia; 3TU Wien
Discussant: Ines Chaieb (University of Geneva)
We propose an equilibrium asset pricing model in which agents learn about the parameters that drive economic fundamentals and differ in their aversion to uncertainty. We first show that, when agents are averse to parameter uncertainty, learning about the volatility of fundamentals has a first-order effect on portfolio flows: uncertainty-averse agents increase their risky asset holdings in periods of high uncertainty, despite holding conservative portfolios. We then show that subjective risk premia increase following both unexpected good and bad news. These predictions are consistent with observed portfolio flows of retail and institutional investors around dividend surprises. Our model highlights that heterogeneity of preferences and learning about volatility of fundamentals are key channels for understanding the equilibrium dynamics of portfolio holdings and risk premia following news about economic outcomes.