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Three Essays on Asset Pricing. Edition No. 1

  • ID: 1916687
  • September 2008
  • 116 Pages
  • VDM Publishing House
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This dissertation focuses on the consumption-based
asset pricing models developed by Lucas (1978). The
first chapter studies the effect of a change in
aggregate risk on the prices of bonds and stocks. A
decomposition method of the dividend and discount
rate effect is defined. Sufficient conditions on
preferences are specified such that an increase in
risk guarantees a fall in stock prices. In the
second chapter, an empirical study examines whether
Bayesian learning can help the Lucas-type models
predict the low levels of short-term real interest
rates in the US. The results show that parameter
uncertainty alone cannot resolve the risk-free rate
puzzle. The learning process ends too rapidly
for parameter uncertainty to play an important role
in affecting bond returns. The third chapter
investigates whether the downturns of business
cycles have caused the falls of real interest rates.
A standard Lucas-type model, with an added feature
that investors have to learn about the unobservable
alternation of business cycles, is calibrated. The
simulation technique of the Markov Chain Monte Carlo
is used to compute the real interest rates.

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Yongli Zhang.
Dr. Yongli Zhang received his Ph.D. in Economics from the
University of California at Santa Barbara in 2007. He is now
Assistant Professor at China Economics and Management Academy of
the Central University of Finance and Economics in Beijing. His
research interest is in the fields of asset pricing, corporate
finance and applied econometrics.

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