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ED. d .Io 9 81577 06186; 61;4: 31534 0318;9 86( w0vwdw Eef E2 b E2D E2SSD E e2 de Io Wklv wdeoh suhvhqwv hvwlpdwhv ri furvv0vhfwlrqdo Idpd0PdfEhwk Uhjuhvvlrqv xvlqj wkh 58 Idpd0Iuhqfk sruwirolrv1 - lv wkh h{fhvv uhwxuqv ri wkh ydoxh zhljkwhg pdunhw sruwirolr/ r lv wkh udwlr ri oderu lqfrph wr frqvxpswlrq/ r  - ghqrwhv wkh uhvlgxdo ri d uhjuhvvlrq ri vfdohg h{fhvv uhwxuq rq h{fhvv 95 uhwxuq wkhpvhoyhv/ - ghqrwhv rxu phdvxuh ri kxpdq fdslwdo h{fhvv uhwxuq dqg { *? E ghqrwhv uhdo oderu0lqfrph jurzwk1 U2 ghqrwhv wkh xqdgmxvwhg U0vtxduh1 96 WDEOH YL FFDSP Idpd0PdfEhwk Uhjuhvvlrqv FRQVW {S r r  {S U2 d_ -2 o  417:8 315375 D2I EbSH ESS. dIo 2 2S2 0fSbb 51356; 22I E  .2 Ef2Hb E.S  deIo 41:3:6 Db D fHb 2De2I E222e E2D2e E2 . dHSeIo e 61743; 2.fS 2bHS f22D beI E .HS. E De2 E2 S E2D..  d f.Io Wklv wdeoh suhvhqwv hvwlpdwhv ri furvv0vhfwlrqdo Idpd0PdfEhwk Uhjuhvvlrqv xvlqj wkh 58 Idpd0Iuhqfk sruwirolrv1 {S ghqrwhv frqvxpswlrq jurzwk/ r lv wkh vkduh ri oderu lqfrph wr frqvxpswlrq/ r  {S ghqrwhv wkh uhvlgxdo ri d uhjuhvvlrq ri vfdohg frqvxpswlrq jurzwk rq frqvxpswlrq jurzwk lwvhoi1 U2 ghqrwhv wkh xqdgmxvwhg U0vtxduh1 97 Wdeoh YLL Hvwlpdwhv ri Elyduldwh JDUFK+4/4, Prgho  2 22 { {22  22 Hvwlpdwh 313793 31333; 313348 031::6< 031<58: 3157<; 03159:9 w0vwdw E e. E f. E2Hb e ED2e E e.D E2 b Eeb bH Uhvxowv ri wkh hvwlpdwh ri Elyduldwh JDUFK+4/4, prgho 3 4 - C | D ' > n 0| {S| zkhuh > lv d 2   yhfwru ri frqvwdqwv dqg 0|  Q Efc M|  zlwk M| '  n {M|! { n 0|  0|   c  3  3   '   zkhuh  lv orzhu wuldqjxodu dqg { dqg  duh gldjrqdo pdwulfhv1  98 Wdeoh YLLL= Suhglfwlqj wkh Uhwxuq 0 Frqvxpswlrq Jurzwk Fryduldqfh Frqvwdqw E|  *E|   Fry+w04, +Dgm1, U2 4<7904<<< Hvw 51::84h0337 051567h0337 1343 w0vwdw +413:<7, +031:68:, Hvw 4143;3h0337 0<1846 g lv wkh qxpehuv ri txduwhuv dkhdg dqg o|c|ng lv wkh fxpxodwlyh orj h{fhvv uhwxuq ryhu g txduwhuv1 Qxpehu lq sduhqwkhvlv vkrz Qhzh|0Zhvw dgmxvwhg w0vwdwlvwlfv1 9: WDEOH [ Vlpxodwhg Glvwulexwlrq ri Suhglfwlyh Uhjuhvvlrq Frh!flhqwv Shufhqwlohv N %| 4( 518( 8( 43( 83( <3( <8( <:18( <<( 4 r 0317;9 0316<: 03164; 031574 03133: 31558 31635 316:4 317:6 7  041;:< 041878 04156: 031<76 031358 31;9; 414:5 4175< 41;3: ;  06198< 051<75 05173: 041;7 03137; 419;: 5158: 51:9 61858 45  0815;8 0715;7 0617;5 0519;7 0313:4 5185 6167; 71385 81357 49  091:6 081835 071847 06183: 031445 61656 716<7 8164: 9187; ( 4 *?  03134 03133: 031338 031336 3133: 3135; 3136< 3137< 31396 7  03136< 03135; 031354 031344 3136 3144 31484 314<5 3156< ;  0313;4 031394 031374 031355 3138< 3154: 315<5 316: 3178; 45  03146 0313<7 031398 031367 313< 3164; 31758 31859 31986 49  0314;6 031466 0313< 03137; 3145 3174: 31884 319:9 31;5 ( 4 *?  03133; 031338 031335 31334 3135 31388 313: 313;7 314 r 031964 03183: 031749 031656 03135< 3159< 31698 31794 3189: 7  031367 03135 03133< 31339 313:; 31544 31594 3163< 316:7  05166< 041<49 0418;6 041588 03143: 41367 416<8 41:6< 514;5 ;  03139: 031374 03134: 31344 31485 316<9 317:; 31897 31995  071665 06187 051<;9 051698 031546 41<99 51958 615;< 61<55 45  031437 031396 03135: 31348 31558 31888 31997 31:8< 31;:9  0913<: 08139< 0715;5 06166< 031638 51:;9 61:5: 717<8 81854 49  03147: 0313;7 03136; 3134; 315<5 319<: 31;4 31<5: 41384  0:1854 091738 081648 07153; 0316; 61834 719<4 8198: 91;34 ( 4 *?   r 031357 03134< 031348 03133< 3134: 3138< 313:9 313< 3143< 7  0313<: 0313:8 031389 031367 3139< 3155; 315;5 31666 316<4 ;  0314<9 03147; 03143< 031399 3146; 31757 3184; 31938 319<4 45  0315;6 03154: 031495 9;0313<7 31536 318<8 31:5 31;6 31<7; 49  0316: 0315;9 03153< 031449 3159: 31:85 31;<8 41356 41486 Wkh wdeoh vkrzv wkh glvwulexwlrq ri suhglfwlyh uhjuhvvlrq frh!flhqwv rewdlqhg iurp 43/333 vlpxodwlrqv ri wkh v|vwhp +| ' @n| / %| ' kn%|  n| zkhuh iru hdfk vlpxodwlrq/ 3 S d g shulrg dkhdg ROV uhjuhvvlrq lv shuiruphg1 Wkdw lv/ +| Eg ' g +|n lv uhjuhvvhg ' rq %|  1 Wkh sdudphwhuv @/ k dqg  dv zhoo dv P ' . E0| c 0|  zlwk 0| ' E| c |  duh jlyhq 3   e| wkhlu uhdo vdpsoh hvwlpdwhv iru hdfk uhjuhvvru %| dv lq wkh wdeoh1 9< Iljxuh 4= Orj Glylghqg Sulfh Udwlr dqg Oderu Lqfrph wr Frqvxpswlrq Udwlr 0.95 -2. 0.9 -3 0.85 -3. 0.8 -4 0.75 -4. 0.7 -5 1940 1950 1960 1970 1980 1990 2000 Wkh wlph vhulhv ri wkh oderu lqfrph 0 wr 0 frqvxpswlrq udwlr +vrolg olqh, dqg ri wkh orj glylghqg sulfh udwlr +gdvk0grwwhg olqh,1 :3 Iljxuh 5= Wkh Lqvwdqwdqhrxv H{shfwhg Uhwxuq x 10 2.92 2.91 2.9 2.89 2.88 µR 2.87 2.86 2.85 2.84 2.83 2.82 0.74 0.76 0.78 0.8 0.82 0.84 0.86 0.88 0.9 0.92 Wkh lqvwdqwdqhrxv h{shfwhg h{fhvv vwrfn uhwxuq sorwwhg djdlqvw wkh zdjhv0 wr0frqvxpswlrq udwlr r ' *1 :4 Iljxuh 6= Wkh Yrodwlolw| ri Uhwxuqv 0.038 0.036 0.034 0.032 R 0.03 0.028 0.026 0.024 0.74 0.76 0.78 0.8 0.82 0.84 0.86 0.88 0.9 0.92 Wkh lqvwdqwdqhrxv yrodwlolw| ri vwrfn uhwxuqv sorwwhg djdlqvw wkh zdjhv0wr0 frqvxpswlrq udwlr r ' *1 :5 Iljxuh 7= Orqj0Whup H{shfwhg Uhwxuqv x 10 2.94 2.92 2.9 2.88 2.86 2.84 2.82 2.8 2.78 2.76 2.74 0.74 0.76 0.78 0.8 0.82 0.84 0.86 0.88 0.9 0.92 Orqj whup h{shfwhg uhwxuqv djdlqvw zdjhv ryhu frqvxpswlrq r iru lqvwdq0 wdqhrxv/ 4/ 5/ 6/ 7 |hdu krul}rqv1 Wrs olqhv duh iru vkruwhvw krul}rq1 :6 Iljxuh 8= Orqj0whup Uhwxuq dqg Orj Glylghqg Sulfh Udwlr 0.8 -2. 0.6 -2. 0.4 -2. 0.2 -3 0 -3. -0.2 -3. -0.4 -3. -0.6 -3. -0.8 -4 1940 1950 1960 1970 1980 1990 2000 Wklv jxuh sorwv wkh 7 |hdu fxpxodwlyh uhwxuq +vrolg olqh, odjjhg e| 7 |hduv dqg wkh fxuuhqw orj glylghqg sulfh udwlr +gdvk0grwwhg olqh, :7 Iljxuh 9= Orqj0whup Uhwxuq dqg Oderu Lqfrph wr Frqvxpswlrq Udwlr 1 0.9 0 0.8 -1 0.7 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Wklv jxuh sorwv wkh 7 |hdu fxpxodwlyh uhwxuq +vrolg olqh, odjjhg e| 7 |hduv dqg wkh fxuuhqw oderu lqfrph wr frqvxpswlrq udwlr +gdvk0grwwhg olqh, :8 Iljxuh := CAPM (A) Unconditional Ilwwhg yhuvxv Dyhudjh Conditional CAPM (B) Uhwxuqv 4 4 45 25 expected returns 3 expected returns 3 24 35 55 44 15 53 5455 22 4252 51 44 43 33 1334 23 14 25 15 32 12 24 35 45 54 32 33 1334 43 14 31 41 11 21 22 11 42 12 2 2 53 23 41 21 31 52 1 1 51 0 0 0 1 2 3 4 0 1 2 3 4 mean returns mean returns (C) Unconditional CCAPM (D) Conditional CCAPM 4 4 expected returns expected returns 3 3 55 45 22 25 12 15 11 12 11 13 35 21 13 31 22 23 14 25 15 45 43 33 44 2414 51 4241 55 33 4434 24 35 32 2 43 2 21 54 32 34 23 53 52 54 52 53 42 31 51 41 1 1 0 0 0 1 2 3 4 0 1 2 3 4 t t Wkhvh irxu sorwv vkrz wkh uhdol}hg yhuvxv wwhg uhwxuqv rq wkh 58 II sruwirolrv1 Sdqho D vkrzv wkh xqfrqglwlrqdo FDSP1 Sdqho E vkrzv wkh frqglwlrqdo FDSP/ frq0 glwlrqlqj e| erwk wkh vkduh/ r c dqg wkh ruwkrjrqdol}hg lqwhudfwlrq idfwru/ -  r  Sdqho F vkrzv wkh xqfrqglwlrqdo FFDSP1 Sdqho G vkrzv wkh frqglwlrqdo FFDSP/ frqglwlrqlqj e| erwk wkh vkduh r c dqg wkh ruwkrjrqdol}hg lqwhudfwlrq idfwru/ {S  r  :9 Iljxuh ;= Fryduldqfh ehwzhhq Uhwxuqv dqg Frqvxpswlrq Jurzwk x 10 3 2 1 0 -1 -2 Rescaled Negative Wages to Consumption Ratio -3 Covariance between Returns and Real Consumption Growth -4 -5 -6 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Wklv jxuh sorwv wkh wlph vhulhv ri wkh fryduldqfh ehwzhhq uhwxuqv dqg uhdo frqvxpswlrq jurzwk +gdvk0grwwhg olqh, dorqj zlwk wkh qhjdwlyh ri wkh zdjhv wr frqvxpswlrq udwlr/ uhvfdohg wr w wkh jxuh1 :: Iljxuh <= Wlph Vhulhv ri Pdfur Hfrqrplf Udwlrv 0.9 0.85 0.8 0.75 0.7 0.65 1940 1950 1960 1970 1980 1990 2000 Wlph vhulhv ri Oderu0lqfrph wr Frqvxpswlrq udwlr +vrolg olqh, dqg Oderu lqfrph wr Glvsrvdeoh lqfrph udwlr +gdvk0grwwhg olqh,1 :;