ASU Electronic Theses and Dissertations
This collection includes most of the ASU Theses and Dissertations from 2011 to present. ASU Theses and Dissertations are available in downloadable PDF format; however, a small percentage of items are under embargo. Information about the dissertations/theses includes degree information, committee members, an abstract, supporting data or media.
In addition to the electronic theses found in the ASU Digital Repository, ASU Theses and Dissertations can be found in the ASU Library Catalog.
Dissertations and Theses granted by Arizona State University are archived and made available through a joint effort of the ASU Graduate College and the ASU Libraries. For more information or questions about this collection contact or visit the Digital Repository ETD Library Guide or contact the ASU Graduate College at gradformat@asu.edu.
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- All Subjects: Economics
In the first essay, I investigate how household financial obligations affect the equity premium. I modify the standard Mehra-Prescott (1985) consumption-based asset pricing model to resolve the equity risk premium puzzle. I focus on two channels: the preference channel and the borrowing constraints channel. Under reasonable parameterizations, my model generates equity risk premiums similar in magnitudes to those observed in U.S. data. Furthermore, I show that relaxing the borrowing constraint shrinks the equity risk premium.
In the Second essay, I test the predictability of excess market returns using the household financial obligations ratio. I show that deviations in the household financial obligations ratio from its long-run mean is a better forecaster of future market returns than alternative prediction variables. The results remain significant using either quarterly or annual data and are robust to out-of-sample tests.
In the third essay, I investigate whether the risk associated with household financial obligations is an economy-wide risk with the potential to explain fluctuations in the cross-section of stock returns. The multifactor model I propose, is a modification of the capital asset pricing model that includes the financial obligations ratio as a ``conditioning down" variable. The key finding is that there is an aggregate hedging demand for securities that pay off in periods characterized by higher levels of financial obligations ratios. The consistent pricing of financial obligations risk with a negative risk premium suggests that the financial obligations ratio acts as a state variable.