Finance Seminar - Jaroslav Borovicka
Jaroslav Borovicka of New York University will present "Risk Premia and Unemployment Fluctuations."
He studied the role of fluctuations in discount rates for the joint dynamics of expected returns in the stock market and employment dynamics. He constructed a non-parametric bound on the predictability and time-variation in conditional volatility of the firm's profit flow that must be met to rationalize the observed business-cycle fluctuations in vacancy-filling rates. A stochastic discount factor consistent with conditional moments of the risk-free rate and expected returns on risky assets only partly alleviates the need for an excessively volatile model of the expected profit flow.