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Publication year
Asset Pricing with Persistence Risk
Resource type
Authors/contributors
- Andrei, Daniel (Author)
- Hasler, Michael (Author)
- Jeanneret, Alexandre (Author)
Title
Asset Pricing with Persistence Risk
Abstract
Persistence risk is an endogenous source of risk that arises when a rational agent learns about the length of business cycles. Persistence risk is positive during recessions and negative during expansions. This asymmetry, which solely results from learning about persistence, causes expected returns, return volatility, and the price of risk to rise during recessions. Persistence risk predicts future excess returns, particularly at 3- to 7-year horizons. Its predictability is strongest around business-cycle peaks and troughs. We confirm the model’s predictions in the data and provide evidence that persistence risk is priced in financial markets.
Publication
Review of Financial Studies
Volume
32
Issue
7
Pages
2809-2849
Date
2019
Citation
Andrei, D., Hasler, M., & Jeanneret, A. (2019). Asset Pricing with Persistence Risk. Review of Financial Studies, 32, 2809–2849.
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