Finance Seminar - Joint with SAFE Visitors Program: Michael Hasler, Ph.D. (University of Toronto)
Title: Asset Pricing with Persistence Risk
Speaker: Michael Hasler, Ph.D. (University of Toronto)
Abstract: Persistence risk is an endogenous source of risk that arises when a rational agent learns about the length of business cycles. Persistence risk is positive during recessions and negative during expansions. This asymmetry, which results solely from learning about persistence, causes expected returns, return volatility, and the price of risk to rise during recessions. Persistence risk predicts future excess returns, particularly at 3- to 7-year horizons. Its predictability is strongest around business cycle peaks and troughs. We confirm the model’s predictions in the data, and provide evidence that persistence risk is priced in financial markets.
Registratration is not required!