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Working Papers

- The Macro and Asset Pricing Implications of Fluctuating Information Quality, August 2020.

(A previous version of this paper circulated under the title "Information Precision, Confidence Risk and the Macroeconomy.")

I study a real business cycle model with variations in information quality. Learning and fluctuations in information quality drive the perceived uncertainty about macroeconomic outcomes without modifying the distribution of realized shocks. A deterioration in the information quality predicts a persistent rise in financial and macroeconomic uncertainty. The volatility of consumption growth endogenously exhibits long-run risks and relates negatively to asset valuations. A distinctive feature of the model is that it reproduces the upward sloping term-structure of the covariance between excess returns and consumption growth in the data.

- Asset Pricing with a CEO (with P. Ehling and P. Konermann), June 2020.

We study an economy with a CEO who trades off the incentive to divert funds, which leads to underinvestment, against the incentive to overinvest based on his optimism. In equilibrium, we see overinvestment relative to what the shareholder or a social planner would implement but underinvestment relative to what the optimistic CEO would implement if there were no feedback between real investment and asset prices. For large wealth shares, the CEO's welfare is higher under a social planner where no funds can be diverted. For small wealth shares, overinvestment peaks and the real short-rate and Tobin's q decline.

Publications

- Asset Prices and Portfolio Choice with Learning from Experience (with P. Ehling and C. Heyerdahl-Larsen), Review of Economic Studies, 2018, 85 (3), 1752 - 1780. Published Version SSRN

We study asset prices and portfolio choice with overlapping generations, where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of output growth, which in equilibrium leads the young to increase their investment in risky assets after positive returns, that is, they act as trend chasers. In equilibrium, the risk premium decreases after a positive shock and, therefore, trend chasing young agents lose wealth relative to old agents who behave as contrarians. Consistent with findings from survey data, the average belief about the risk premium in the economy relates negatively to future excess returns and is smoother than the true risk premium.