Title of dissertation: RISK AVERSION, PRIVATE INFORMATION AND REAL FLUCTUATIONS Cristián Pardo, Doctor of Philosophy, 2005 Dissertation directed by: Professor John Shea Department of Economics In this dissertation, I further explore the role of the entrepreneurial sector in creating frictions in the economy. I examine the combined effect of private information and entrepreneurial risk aversion ...

The evaluation and control of an agent‘s debt has become a major issue in economics. In this paper we focus on firms and study credit risk, debt control and asset valuation of firms. We demonstrate that firm specific credit constraints and endogenous risk premia, based on collateralized borrowing, affect the asset value of the firm and, in turn, the collateral value of the firm. In order to exp...

Did the unification of commercial and investment banking heighten risk in financial markets due to moral hazard of borrowers? In a simple intertemporal model with moral hazard and uninsured risk, we argue that if financial contracts are properly written, the integration in financial markets could give rise to greater risk sharing arrangement and could eliminate the equity risk premium attribute...

In standard expositions of the equity premium, risk-free rate, and excess volatility puzzles, the subjective distribution of future growth rates has its mean and variance calibrated to past sample averages. This paper shows that proper Bayesian estimation of uncertain structural growth parameters introduces an irreducible fat-tailed background uncertainty that can explain all three puzzles pars...

We estimate the equity premium using CDS spreads and structural models of default. Our estimates yield equity premia of 6.50% (U.S.), 5.44% (Europe) and 6.21% (Asia) based on 5year CDS spreads from 2003-2007. Due to some conservative assumptions these estimates are upper limits for the equity premium. Using 3-, 7and 10-year CDS maturities yields similar results and o ers an opportunity to estim...

We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous borrowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well as the short-term momentum and long-term reversal of excess returns. We calibrate the model to U.S. d...

In this paper we derive closed-form solutions for a variety of prices for financial assets in an RBC economy. The equations are based on a log-linear solution of the RBC model and allow a clearer understanding of the determination of risk premia in models with production. We demonstrate not only why the premium of equity over the risk-free rate is small but also why the premium of equity over a...