NBER

Mariano Max Croce

Kenan-Flagler Business School
University of North Carolina at Chapel Hill
Campus Box #3490
Chapel Hill, NC 27559

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NBER Program Affiliations: IFM
NBER Affiliation: Research Associate
Institutional Affiliation: University of North Carolina at Chapel Hill

NBER Working Papers and Publications

November 2018Volatility Risk Pass-through
with Riccardo Colacito, Yang Liu, Ivan Shaliastovich: w25276
We develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country's output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50% (a 1% increase in output volatility increases consumption volatility by 0.5%) and it increases to 70% for shocks originating in smaller countries. The equity volatility pass-through is 90%, whereas the link between volatility of currency and fundamentals is weak. A novel channel of risk sharing of volatility risks can explain our empirical findings.
February 2007Investor Information, Long-Run Risk, and the Term Structure of Equity
with Martin Lettau, Sydney C. Ludvigson: w12912
We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the equity term structure slopes up, contrary to the data. In general, the short- and long-run components are unidentified. We propose a sparsity-based bounded rationality model of long-run risk that is both parsimonious and fully identified from historical data. In contrast to full information, the model generates a sizable market risk premium simultaneously with a downward sloping equity term structure, as in the data.

Published: Mariano M. Croce & Martin Lettau & Sydney C. Ludvigson, 2015. "Investor Information, Long-Run Risk, and the Term Structure of Equity," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 706-742. citation courtesy of

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