Events

Prof. Mikhail Chernov
Professor of Finance
UCLA Anderson School of Management

We summarize six pieces of evidence that pose a challenge to workhorse consumption-based asset pricing models in the realm of stock-bond interaction. We propose an explanation that features both permanent and transient components in aggregate consumption. Depending on the state of the economy, one of the two components dominates generating changing correlations between stocks and bonds, upward sloping real yield curve and almost flat equity yield curve. Our mechanism is novel as it primarily relies on the real economy to generate the qualitatively realistic patterns.