When
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Where
Jeroen Dalderop from the University of Notre Dame will present "Estimating Policy Functions Implicit in Asset Prices".
Abstract: I study the estimation and identification of a semiparametric asset pricing model in which consumption and dividend policy depends nonlinearly on unobserved but affine state variables. The stock pricing functions identify the shape of the policy functions separately from that of the stochastic discount factor. Polynomial approximations of the unknown functions leads to closed-form price-dividend ratios, that are used to efficiently recover the state variables from cross-sections of asset prices and/or volatility proxies. In the empirical application uncertainty and risk aversion are separately identified from the heterogeneous impact of uncertainty on dividend policy across small and large firms. I find an asymmetric and convex response in consumption (-) and dividend growth (+) towards uncertainty shocks, which together with moderate uncertainty aversion, can generate large leverage effects and divergence between macroeconomic and stock market volatility.