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Publications of Dana Kiku    :chronological  alphabetical  combined listing:

%% Working Papers   
@article{fds48049,
   Author = {D. Kiku and Ravi Bansal},
   Title = {Long-Run Asset Allocation},
   Year = {2006},
   Month = {June},
   Abstract = {<div style="text-align: justify;"> In this paper we show
             that the economic restriction of cointegration between
             portfolio cash flow levels and consumption level has
             important implications for return dynamics and portfolio
             choice. When cash flows and consumption are cointegrated,
             the cointegration error forecasts long-horizon dividend
             growth rates and returns, and alters the variance-covariance
             of returns by horizon. We show that the optimal asset mix,
             based on the EC-VAR specification with the cointegration
             restriction imposed, can be quite different relative to a
             traditional VAR that ignores the cointegration restriction.
             We develop and implement methods to account for parameter
             uncertainty in the EC-VAR setup and highlight the importance
             of the error-correction channel for optimal asset allocation
             at short and long investment horizons. </div>},
   Key = {fds48049}
}

@article{fds42548,
   Author = {D. Kiku and Ravi Bansal and Robert Dittmar},
   Title = {Cointegration and Consumption Risks in Asset
             Returns},
   Year = {2006},
   Month = {March},
   Abstract = {<div style="text-align: justify;"> In this paper, we argue
             that long run movement in consumption is a key determinant
             of the risk-return relation in asset markets. Our goal is to
             explain cross-sectional differences in risk premia by
             horizon. We show that as the investment horizon increases,
             the return's consumption beta is dominated by the long-run
             (cointegrating) relation between dividends and consumption.
             Further, as cointegration alters dividend growth and return
             predictability, it has important conceptual and empirical
             implications for the risk-return tradeoff at all investment
             horizons. We show that asset betas, derived from an
             Error-Correction VAR model of returns, can successfully
             account for the cross-sectional variation in equity mean
             returns at both short and long horizons; this is not the
             case when the cointegrating restriction is ignored. In all,
             our evidence underscores the economic importance of
             cointegration and risks related to long run movements in
             consumption for understanding the whole term structure of
             the risk-return tradeoff in the cross-section of assets.
             </div>},
   Key = {fds42548}
}

@article{fds42547,
   Title = {Is the Value Premium a Puzzle?},
   Year = {2005},
   Month = {Fall},
   Abstract = {<div style="text-align: justify;"> This paper provides an
             economic explanation of the value premium puzzle,
             differences in price/dividend and Sharpe ratios of value and
             growth assets, volatilities of ex-post returns on the two
             stocks and their correlation. I consider a model that
             features two equally important ingredients: a small
             persistent component in cash-flow growth dynamics and the
             Epstein-Zin recursive utility preferences. In the model, as
             in the data, cash flows of value firms are highly exposed to
             low-frequency fluctuations in aggregate consumption, whereas
             growth firms' dividends are mainly driven by short-lived
             consumption news and risks related to fluctuating economic
             uncertainty. I show that the dispersion in long-run risks is
             the key mechanism that allows the model to quantitatively
             replicate the magnitude of the historical value premium,
             resolving the puzzle. Furthermore, heterogeneity in
             systematic risks across firms helps account for the whole
             transitional dynamics of value and growth returns, as well
             as the empirical failure of the CAPM and C-CAPM. In
             addition, the model is able to successfully accommodate the
             time-series behavior of the aggregate equity market.
             </div>},
   Key = {fds42547}
}

@article{fds42549,
   Title = {Trend/Cycle Risks: Decomposition and Premia},
   Year = {2003},
   Abstract = {<div style="text-align: justify;"> This paper studies the
             relative importance of long- and short-run risks in assets'
             cash flows in explaining the cross-sectional variation in
             risk premia. Permanent and transitory economic shocks are
             identified using two different methodologies developed in
             Engle and Vahid (1993), and Gonzalo and Granger (1995). I
             find that the cost of long-run economic uncertainty far
             exceeds that for business-cycle fluctuations. Even though,
             short-run cash-flow betas contain valuable information about
             the risk-return tradeoff. </div>},
   Key = {fds42549}
}


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