The 209th Finance and Accounting Academic Forum

Source: Updated:2015/07/05/

Time: July 3th 2015( Friday)14:30-16:00

Location: Room 501, Jiageng 2-501

Moderator:Wuji, Assistant Professor of IFAS

Topic: Ambiguity and Financial Uncertainty in a Real Business Cycle Model

PresenterHening Liu,Reader (Full Professor) inFinance, University of Manchester 

Abstract

Financialuncertainty measured by the risk neutral variance is negatively related to consumption,investment, output and the price-dividend ratio but positively related to futurestock returns and volatilities of consumption growth, investment growth, outputgrowth and stock returns. In addition, the mean and volatility of the variancerisk premium are large and cannot be explained by standard asset pricingmodels. We examine a production-based asset pricing model where productivitygrowth follows a Markov process with time varying conditional mean andvolatility and the representative agent has ambiguity aversion preferences.When the model is calibrated to match unconditional moments of macroeconomicquantities and asset returns, and the dividends dynamics are calibrated to beprocyclical, the model can reproduce the relations between the risk neutralvariance and both the level and variation of quantities and returns observed inthe data. The model can also generate a sizable variance risk premium.

Personal Profile

Dr. Liu got his Ph.D. andbachelor in Economics from Northern Illinois University and Jinan Universityrespectively. His research interests include Asset Pricing, Macro-Finance,Portfolio Choice, Financial Econometrics. He’s published papers in Journal of Financial and QuantitativeAnalysis, Review of Financial Studies,and etc.