Nobel Lecture: Uncertainty Outside and Inside Economic Models

  title={Nobel Lecture: Uncertainty Outside and Inside Economic Models},
  author={Lars Peter Hansen},
  journal={Journal of Political Economy},
  pages={945 - 987}
  • L. Hansen
  • Published 1 October 2014
  • Economics
  • Journal of Political Economy
Asset pricing theory has long recognized that financial markets compensate investors who are exposed to some components of uncertainty. This is where macroeconomics comes into play. The economywide shocks, the primary concern of macroeconomists, by their nature are not diversifiable. Exposures to these shocks cannot be averaged out with exposures to other shocks. Thus returns on assets that depend on these macroeconomic shocks reflect “risk” premia and are a linchpin connecting macroeconomic… Expand
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